Correlation Between Small Cap and Sun Country

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

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

Diversification Opportunities for Small Cap and Sun Country

0.78

Correlation Coefficient

Small Cap  Sun Country

Poor diversification

The 3 months correlation between Small and Sun is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Sun Country Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Country Airlines and Small Cap 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 Small Cap Premium are associated (or correlated) with Sun Country. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Country Airlines has no effect on the direction of Small Cap i.e., Small Cap and Sun Country go up and down completely randomly.

Pair Corralation between Small Cap and Sun Country

Considering the 90-day investment horizon Small Cap is expected to generate 15.34 times less return on investment than Sun Country. But when comparing it to its historical volatility, Small Cap Premium is 7.44 times less risky than Sun Country. It trades about 0.07 of its potential returns per unit of risk. Sun Country Airlines is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,132  in Sun Country Airlines on September 18, 2024 and sell it today you would earn a total of  387.00  from holding Sun Country Airlines or generate 34.19% return on investment over 90 days.

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

Small Cap Premium  vs.  Sun Country Airlines

Small Cap Premium

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sun Country Airlines

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Country Airlines are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Sun Country showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Sun Country

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

The idea behind Small Cap Premium and Sun Country Airlines 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.