Correlation Between Sun Max and Kunyue Development

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

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

Diversification Opportunities for Sun Max and Kunyue Development

0.41

Correlation Coefficient

Sun Max  Kunyue Development

Very weak diversification

The 3 months correlation between Sun and Kunyue is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Sun Max Tech and Kunyue Development Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kunyue Development and Sun Max 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 Sun Max Tech are associated (or correlated) with Kunyue Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kunyue Development has no effect on the direction of Sun Max i.e., Sun Max and Kunyue Development go up and down completely randomly.

Pair Corralation between Sun Max and Kunyue Development

Assuming the 90 days trading horizon Sun Max is expected to generate 20.61 times less return on investment than Kunyue Development. But when comparing it to its historical volatility, Sun Max Tech is 1.02 times less risky than Kunyue Development. It trades about 0.01 of its potential returns per unit of risk. Kunyue Development Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,580  in Kunyue Development Co on October 24, 2024 and sell it today you would earn a total of  560.00  from holding Kunyue Development Co or generate 15.64% return on investment over 90 days.

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

Sun Max Tech  vs.  Kunyue Development Co

Sun Max Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sun Max Tech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Sun Max is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kunyue Development

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kunyue Development Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kunyue Development showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sun Max and Kunyue Development

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

The idea behind Sun Max Tech and Kunyue Development 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.