Correlation Between Great-Sun Foods and Sunwave Communications

Can any of the company-specific risk be diversified away by investing in both Great-Sun Foods and Sunwave Communications 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 Great-Sun Foods and Sunwave Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Great Sun Foods Co and Sunwave Communications Co, you can compare the effects of market volatilities on Great-Sun Foods and Sunwave Communications 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 Great-Sun Foods with a short position of Sunwave Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great-Sun Foods and Sunwave Communications.

Diversification Opportunities for Great-Sun Foods and Sunwave Communications

0.54

Correlation Coefficient

Great-Sun Foods  Sunwave Communications

Very weak diversification

The 3 months correlation between Great-Sun and Sunwave is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Great Sun Foods Co and Sunwave Communications Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunwave Communications and Great-Sun Foods 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 Great Sun Foods Co are associated (or correlated) with Sunwave Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunwave Communications has no effect on the direction of Great-Sun Foods i.e., Great-Sun Foods and Sunwave Communications go up and down completely randomly.

Pair Corralation between Great-Sun Foods and Sunwave Communications

Assuming the 90 days trading horizon Great Sun Foods Co is expected to under-perform the Sunwave Communications. But the stock apears to be less risky and, when comparing its historical volatility, Great Sun Foods Co is 1.72 times less risky than Sunwave Communications. The stock trades about 0.0 of its potential returns per unit of risk. The Sunwave Communications Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  704.00  in Sunwave Communications Co on December 1, 2024 and sell it today you would earn a total of  27.00  from holding Sunwave Communications Co or generate 3.84% return on investment over 90 days.

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

Great Sun Foods Co  vs.  Sunwave Communications Co

Great Sun Foods

Risk-Adjusted Performance

Very Weak

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

Sunwave Communications

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sunwave Communications Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sunwave Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great-Sun Foods and Sunwave Communications

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

The idea behind Great Sun Foods Co and Sunwave Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.