Correlation Between Sound Point and Senior Connect
Can any of the company-specific risk be diversified away by investing in both Sound Point and Senior Connect 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 Sound Point and Senior Connect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sound Point Acquisition and Senior Connect Acquisition, you can compare the effects of market volatilities on Sound Point and Senior Connect 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 Sound Point with a short position of Senior Connect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sound Point and Senior Connect.
Diversification Opportunities for Sound Point and Senior Connect
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sound and Senior is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sound Point Acquisition and Senior Connect Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Senior Connect Acqui and Sound Point 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 Sound Point Acquisition are associated (or correlated) with Senior Connect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Senior Connect Acqui has no effect on the direction of Sound Point i.e., Sound Point and Senior Connect go up and down completely randomly.
Pair Corralation between Sound Point and Senior Connect
Assuming the 90 days horizon Sound Point Acquisition is expected to generate 1.6 times more return on investment than Senior Connect. However, Sound Point is 1.6 times more volatile than Senior Connect Acquisition. It trades about 0.07 of its potential returns per unit of risk. Senior Connect Acquisition is currently generating about -0.08 per unit of risk. If you would invest 15.00 in Sound Point Acquisition on August 29, 2024 and sell it today you would lose (14.49) from holding Sound Point Acquisition or give up 96.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 85.88% |
| Values | Daily Returns |
Sound Point Acquisition vs. Senior Connect Acquisition
Performance |
| Timeline |
| Sound Point Acquisition |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Senior Connect Acqui |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Sound Point and Senior Connect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sound Point and Senior Connect
The main advantage of trading using opposite Sound Point and Senior Connect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sound Point position performs unexpectedly, Senior Connect 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 Senior Connect will offset losses from the drop in Senior Connect's long position.The idea behind Sound Point Acquisition and Senior Connect Acquisition 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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