Correlation Between Higher Way and Sea Sonic

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

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

Diversification Opportunities for Higher Way and Sea Sonic

-0.27

Correlation Coefficient

Higher Way  Sea Sonic

Very good diversification

The 3 months correlation between Higher and Sea is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Higher Way Electronic and Sea Sonic Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Sonic Electronics and Higher Way 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 Higher Way Electronic are associated (or correlated) with Sea Sonic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Sonic Electronics has no effect on the direction of Higher Way i.e., Higher Way and Sea Sonic go up and down completely randomly.

Pair Corralation between Higher Way and Sea Sonic

Assuming the 90 days trading horizon Higher Way Electronic is expected to under-perform the Sea Sonic. But the stock apears to be less risky and, when comparing its historical volatility, Higher Way Electronic is 1.27 times less risky than Sea Sonic. The stock trades about -0.09 of its potential returns per unit of risk. The Sea Sonic Electronics is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,000  in Sea Sonic Electronics on December 22, 2024 and sell it today you would earn a total of  1,020  from holding Sea Sonic Electronics or generate 14.57% return on investment over 90 days.

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

Higher Way Electronic  vs.  Sea Sonic Electronics

Higher Way Electronic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Higher Way Electronic 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.

Sea Sonic Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Sonic Electronics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sea Sonic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Higher Way and Sea Sonic

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

The idea behind Higher Way Electronic and Sea Sonic Electronics 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.