Correlation Between Sunny Friend and ECOVE Environment
Can any of the company-specific risk be diversified away by investing in both Sunny Friend and ECOVE Environment 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 Sunny Friend and ECOVE Environment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sunny Friend Environmental and ECOVE Environment Corp, you can compare the effects of market volatilities on Sunny Friend and ECOVE Environment 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 Sunny Friend with a short position of ECOVE Environment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunny Friend and ECOVE Environment.
Diversification Opportunities for Sunny Friend and ECOVE Environment
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Sunny and ECOVE is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Friend Environmental and ECOVE Environment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECOVE Environment Corp and Sunny Friend 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 Sunny Friend Environmental are associated (or correlated) with ECOVE Environment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECOVE Environment Corp has no effect on the direction of Sunny Friend i.e., Sunny Friend and ECOVE Environment go up and down completely randomly.
Pair Corralation between Sunny Friend and ECOVE Environment
Assuming the 90 days trading horizon Sunny Friend Environmental is expected to under-perform the ECOVE Environment. In addition to that, Sunny Friend is 3.04 times more volatile than ECOVE Environment Corp. It trades about -0.04 of its total potential returns per unit of risk. ECOVE Environment Corp is currently generating about 0.03 per unit of volatility. If you would invest 28,200 in ECOVE Environment Corp on November 3, 2024 and sell it today you would earn a total of 550.00 from holding ECOVE Environment Corp or generate 1.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sunny Friend Environmental vs. ECOVE Environment Corp
Performance |
| Timeline |
| Sunny Friend Environ |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| ECOVE Environment Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
Sunny Friend and ECOVE Environment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sunny Friend and ECOVE Environment
The main advantage of trading using opposite Sunny Friend and ECOVE Environment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunny Friend position performs unexpectedly, ECOVE Environment 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 ECOVE Environment will offset losses from the drop in ECOVE Environment's long position.The idea behind Sunny Friend Environmental and ECOVE Environment Corp 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.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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