Correlation Between Champion Building and Sunspring Metal

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

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

Diversification Opportunities for Champion Building and Sunspring Metal

0.73

Correlation Coefficient

Champion Building  Sunspring Metal

Poor diversification

The 3 months correlation between Champion and Sunspring is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Champion Building Materials and Sunspring Metal Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunspring Metal Corp and Champion Building 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 Champion Building Materials are associated (or correlated) with Sunspring Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunspring Metal Corp has no effect on the direction of Champion Building i.e., Champion Building and Sunspring Metal go up and down completely randomly.

Pair Corralation between Champion Building and Sunspring Metal

Assuming the 90 days trading horizon Champion Building Materials is expected to under-perform the Sunspring Metal. But the stock apears to be less risky and, when comparing its historical volatility, Champion Building Materials is 1.34 times less risky than Sunspring Metal. The stock trades about -0.08 of its potential returns per unit of risk. The Sunspring Metal Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,670  in Sunspring Metal Corp on September 12, 2024 and sell it today you would lose (380.00) from holding Sunspring Metal Corp or give up 10.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Champion Building Materials  vs.  Sunspring Metal Corp

Champion Building

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Champion Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Sunspring Metal Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunspring Metal Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Champion Building and Sunspring Metal

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

The idea behind Champion Building Materials and Sunspring Metal 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.