Correlation Between ABCO Electronics and Sunny Electronics

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

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

Diversification Opportunities for ABCO Electronics and Sunny Electronics

-0.07

Correlation Coefficient

ABCO Electronics  Sunny Electronics

Good diversification

The 3 months correlation between ABCO and Sunny is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding ABCO Electronics Co and Sunny Electronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunny Electronics Corp and ABCO 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 ABCO Electronics Co are associated (or correlated) with Sunny Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunny Electronics Corp has no effect on the direction of ABCO Electronics i.e., ABCO Electronics and Sunny Electronics go up and down completely randomly.

Pair Corralation between ABCO Electronics and Sunny Electronics

Assuming the 90 days trading horizon ABCO Electronics Co is expected to generate 1.24 times more return on investment than Sunny Electronics. However, ABCO Electronics is 1.24 times more volatile than Sunny Electronics Corp. It trades about 0.1 of its potential returns per unit of risk. Sunny Electronics Corp is currently generating about 0.02 per unit of risk. If you would invest  449,000  in ABCO Electronics Co on December 30, 2024 and sell it today you would earn a total of  76,000  from holding ABCO Electronics Co or generate 16.93% return on investment over 90 days.

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

ABCO Electronics Co  vs.  Sunny Electronics Corp

ABCO Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABCO Electronics Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABCO Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Sunny Electronics Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sunny Electronics Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sunny Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ABCO Electronics and Sunny Electronics

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

The idea behind ABCO Electronics Co and Sunny Electronics Corp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.