Correlation Between Wave Electronics and Sungmoon Electronics

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

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

Diversification Opportunities for Wave Electronics and Sungmoon Electronics

0.62

Correlation Coefficient

Wave Electronics  Sungmoon Electronics

Poor diversification

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

Pair Corralation between Wave Electronics and Sungmoon Electronics

Assuming the 90 days trading horizon Wave Electronics is expected to generate 1.1 times less return on investment than Sungmoon Electronics. But when comparing it to its historical volatility, Wave Electronics Co is 2.93 times less risky than Sungmoon Electronics. It trades about 0.4 of its potential returns per unit of risk. Sungmoon Electronics Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. 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

Wave Electronics Co  vs.  Sungmoon Electronics Co

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.

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.

Pair Trading with Wave Electronics and Sungmoon Electronics

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

The idea behind Wave Electronics Co and Sungmoon 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.