Correlation Between Sunonwealth Electric and Sunny Friend
Can any of the company-specific risk be diversified away by investing in both Sunonwealth Electric and Sunny Friend 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 Sunonwealth Electric and Sunny Friend into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sunonwealth Electric Machine and Sunny Friend Environmental, you can compare the effects of market volatilities on Sunonwealth Electric and Sunny Friend 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 Sunonwealth Electric with a short position of Sunny Friend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunonwealth Electric and Sunny Friend.
Diversification Opportunities for Sunonwealth Electric and Sunny Friend
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sunonwealth and Sunny is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sunonwealth Electric Machine and Sunny Friend Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunny Friend Environ and Sunonwealth Electric 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 Sunonwealth Electric Machine are associated (or correlated) with Sunny Friend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunny Friend Environ has no effect on the direction of Sunonwealth Electric i.e., Sunonwealth Electric and Sunny Friend go up and down completely randomly.
Pair Corralation between Sunonwealth Electric and Sunny Friend
Assuming the 90 days trading horizon Sunonwealth Electric Machine is expected to generate 1.4 times more return on investment than Sunny Friend. However, Sunonwealth Electric is 1.4 times more volatile than Sunny Friend Environmental. It trades about 0.03 of its potential returns per unit of risk. Sunny Friend Environmental is currently generating about -0.1 per unit of risk. If you would invest 9,890 in Sunonwealth Electric Machine on August 30, 2024 and sell it today you would earn a total of 110.00 from holding Sunonwealth Electric Machine or generate 1.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sunonwealth Electric Machine vs. Sunny Friend Environmental
Performance |
| Timeline |
| Sunonwealth Electric |
| Sunny Friend Environ |
Sunonwealth Electric and Sunny Friend Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sunonwealth Electric and Sunny Friend
The main advantage of trading using opposite Sunonwealth Electric and Sunny Friend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunonwealth Electric position performs unexpectedly, Sunny Friend can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Sunny Friend will offset losses from the drop in Sunny Friend's long position.The idea behind Sunonwealth Electric Machine and Sunny Friend Environmental pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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