Correlation Between REN and SUN

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

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

Diversification Opportunities for REN and SUN

0.37

Correlation Coefficient

REN  SUN

Weak diversification

The 3 months correlation between REN and SUN is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding REN and SUN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SUN and REN 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 REN 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 REN i.e., REN and SUN go up and down completely randomly.

Pair Corralation between REN and SUN

Assuming the 90 days trading horizon REN is expected to generate 1.15 times more return on investment than SUN. However, REN is 1.15 times more volatile than SUN. It trades about 0.11 of its potential returns per unit of risk. SUN is currently generating about -0.01 per unit of risk. If you would invest  3.65  in REN on September 3, 2024 and sell it today you would earn a total of  1.49  from holding REN or generate 40.82% return on investment over 90 days.

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

REN  vs.  SUN

REN

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in REN are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, REN 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 REN and SUN

The main advantage of trading using opposite REN and SUN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if REN 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 REN 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.

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.