Correlation Between Sports Gear and Sun Max

Can any of the company-specific risk be diversified away by investing in both Sports Gear and Sun Max 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 Sports Gear and Sun Max into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sports Gear Co and Sun Max Tech, you can compare the effects of market volatilities on Sports Gear and Sun Max 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 Sports Gear with a short position of Sun Max. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sports Gear and Sun Max.

Diversification Opportunities for Sports Gear and Sun Max

0.71

Correlation Coefficient

Sports Gear  Sun Max

Poor diversification

The 3 months correlation between Sports and Sun is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sports Gear Co and Sun Max Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Max Tech and Sports Gear 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 Sports Gear Co are associated (or correlated) with Sun Max. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Max Tech has no effect on the direction of Sports Gear i.e., Sports Gear and Sun Max go up and down completely randomly.

Pair Corralation between Sports Gear and Sun Max

Assuming the 90 days trading horizon Sports Gear Co is expected to generate 2.28 times more return on investment than Sun Max. However, Sports Gear is 2.28 times more volatile than Sun Max Tech. It trades about 0.24 of its potential returns per unit of risk. Sun Max Tech is currently generating about 0.11 per unit of risk. If you would invest  8,380  in Sports Gear Co on September 4, 2024 and sell it today you would earn a total of  5,470  from holding Sports Gear Co or generate 65.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Sports Gear Co  vs.  Sun Max Tech

Sports Gear

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sports Gear Co are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sports Gear showed solid returns over the last few months and may actually be approaching a breakup point.

Sun Max Tech

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Max Tech are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sun Max may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sports Gear and Sun Max

The main advantage of trading using opposite Sports Gear and Sun Max positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sports Gear position performs unexpectedly, Sun Max 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 Sun Max will offset losses from the drop in Sun Max's long position.

The idea behind Sports Gear Co and Sun Max Tech 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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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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.