Can any of the company-specific risk be diversified away by investing in both Smith Wesson and Trigon Metals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Smith Wesson and Trigon Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smith Wesson Brands and Trigon Metals, you can compare the effects of market volatilities on Smith Wesson and Trigon Metals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Smith Wesson with a short position of Trigon Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Wesson and Trigon Metals.
Diversification Opportunities for Smith Wesson and Trigon Metals
The 3 months correlation between Smith and Trigon is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Smith Wesson Brands and Trigon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trigon Metals and Smith Wesson is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Smith Wesson Brands are associated (or correlated) with Trigon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trigon Metals has no effect on the direction of Smith Wesson i.e., Smith Wesson and Trigon Metals go up and down completely randomly.
Pair Corralation between Smith Wesson and Trigon Metals
Given the investment horizon of 90 days Smith Wesson Brands is expected to under-perform the Trigon Metals. But the stock apears to be less risky and, when comparing its historical volatility, Smith Wesson Brands is 68.33 times less risky than Trigon Metals. The stock trades about -0.15 of its potential returns per unit of risk. The Trigon Metals is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 67.00 in Trigon Metals on March 6, 2024 and sell it today you would lose (51.00) from holding Trigon Metals or give up 76.12% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Smith Wesson Brands are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental drivers, Smith Wesson demonstrated solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Trigon Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Trigon Metals reported solid returns over the last few months and may actually be approaching a breakup point.