Correlation Between Sun Country and Small Cap

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

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

Diversification Opportunities for Sun Country and Small Cap

0.78

Correlation Coefficient

Sun Country  Small Cap

Poor diversification

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

Pair Corralation between Sun Country and Small Cap

Given the investment horizon of 90 days Sun Country Airlines is expected to generate 7.26 times more return on investment than Small Cap. However, Sun Country is 7.26 times more volatile than Small Cap Premium. It trades about 0.15 of its potential returns per unit of risk. Small Cap Premium is currently generating about 0.04 per unit of risk. If you would invest  1,122  in Sun Country Airlines on September 17, 2024 and sell it today you would earn a total of  397.00  from holding Sun Country Airlines or generate 35.38% return on investment over 90 days.

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

Sun Country Airlines  vs.  Small Cap Premium

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.

Small Cap Premium

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 3 (%) 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.

Pair Trading with Sun Country and Small Cap

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

The idea behind Sun Country Airlines and Small Cap Premium 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.