Correlation Between A O and Sony

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

By analyzing existing cross correlation between A O Smith and Sony Group, you can compare the effects of market volatilities on A O and Sony 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 A O with a short position of Sony. Check out your portfolio center. Please also check ongoing floating volatility patterns of A O and Sony.

Diversification Opportunities for A O and Sony

0.66

Correlation Coefficient

A O  Sony

Poor diversification

The 3 months correlation between AOS and Sony is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding A O Smith and Sony Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Group and A O 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 A O Smith are associated (or correlated) with Sony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Group has no effect on the direction of A O i.e., A O and Sony go up and down completely randomly.

Pair Corralation between A O and Sony

Assuming the 90 days trading horizon A O is expected to generate 565.8 times less return on investment than Sony. But when comparing it to its historical volatility, A O Smith is 463.33 times less risky than Sony. It trades about 0.14 of its potential returns per unit of risk. Sony Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  37,000  in Sony Group on September 29, 2024 and sell it today you would earn a total of  6,600  from holding Sony Group or generate 17.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

A O Smith  vs.  Sony Group

A O Smith

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in A O Smith are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, A O is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Sony Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Sony displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with A O and Sony

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

The idea behind A O Smith and Sony 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..