Correlation Between Sungmoon Electronics and Wave Electronics

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

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

Diversification Opportunities for Sungmoon Electronics and Wave Electronics

0.62

Correlation Coefficient

Sungmoon Electronics  Wave Electronics

Poor diversification

The 3 months correlation between Sungmoon and Wave is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Sungmoon Electronics Co and Wave Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Electronics and Sungmoon Electronics 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 Sungmoon Electronics Co are associated (or correlated) with Wave Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Electronics has no effect on the direction of Sungmoon Electronics i.e., Sungmoon Electronics and Wave Electronics go up and down completely randomly.

Pair Corralation between Sungmoon Electronics and Wave Electronics

Assuming the 90 days trading horizon Sungmoon Electronics Co is expected to generate 2.93 times more return on investment than Wave Electronics. However, Sungmoon Electronics is 2.93 times more volatile than Wave Electronics Co. It trades about 0.15 of its potential returns per unit of risk. Wave Electronics Co is currently generating about 0.4 per unit of risk. If you would invest  405,500  in Sungmoon Electronics Co on October 10, 2024 and sell it today you would earn a total of  53,500  from holding Sungmoon Electronics Co or generate 13.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Sungmoon Electronics Co  vs.  Wave Electronics Co

Sungmoon Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sungmoon Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sungmoon Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wave Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wave Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sungmoon Electronics and Wave Electronics

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

The idea behind Sungmoon Electronics Co and Wave Electronics Co 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.