Correlation Between Sono Tek and Track
Can any of the company-specific risk be diversified away by investing in both Sono Tek and Track 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 Sono Tek and Track into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sono Tek Corp and Track Group, you can compare the effects of market volatilities on Sono Tek and Track 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 Sono Tek with a short position of Track. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sono Tek and Track.
Diversification Opportunities for Sono Tek and Track
Excellent diversification
The 3 months correlation between Sono and Track is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sono Tek Corp and Track Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Track Group and Sono Tek 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 Sono Tek Corp are associated (or correlated) with Track. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Track Group has no effect on the direction of Sono Tek i.e., Sono Tek and Track go up and down completely randomly.
Pair Corralation between Sono Tek and Track
Given the investment horizon of 90 days Sono Tek is expected to generate 16.0 times less return on investment than Track. But when comparing it to its historical volatility, Sono Tek Corp is 8.5 times less risky than Track. It trades about 0.09 of its potential returns per unit of risk. Track Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 11.00 in Track Group on August 28, 2024 and sell it today you would earn a total of 4.00 from holding Track Group or generate 36.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sono Tek Corp vs. Track Group
Performance |
| Timeline |
| Sono Tek Corp |
| Track Group |
Sono Tek and Track Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sono Tek and Track
The main advantage of trading using opposite Sono Tek and Track positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sono Tek position performs unexpectedly, Track 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 Track will offset losses from the drop in Track's long position.The idea behind Sono Tek Corp and Track Group 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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