Correlation Between Maker and SUN

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

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

Diversification Opportunities for Maker and SUN

0.67

Correlation Coefficient

Maker  SUN

Poor diversification

The 3 months correlation between Maker and SUN is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Maker and SUN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUN and Maker 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 Maker are associated (or correlated) with SUN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SUN has no effect on the direction of Maker i.e., Maker and SUN go up and down completely randomly.

Pair Corralation between Maker and SUN

Assuming the 90 days trading horizon Maker is expected to generate 0.85 times more return on investment than SUN. However, Maker is 1.18 times less risky than SUN. It trades about 0.06 of its potential returns per unit of risk. SUN is currently generating about -0.01 per unit of risk. If you would invest  167,183  in Maker on September 3, 2024 and sell it today you would earn a total of  18,816  from holding Maker or generate 11.25% return on investment over 90 days.

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

Maker  vs.  SUN

Maker

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Maker are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Maker exhibited solid returns over the last few months and may actually be approaching a breakup point.

SUN

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SUN is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Maker and SUN

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

The idea behind Maker and SUN 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.