Correlation Between Sunny Friend and Higher Way

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

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

Diversification Opportunities for Sunny Friend and Higher Way

0.24

Correlation Coefficient

Sunny Friend  Higher Way

Modest diversification

The 3 months correlation between Sunny and Higher is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Sunny Friend Environmental and Higher Way Electronic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Higher Way Electronic and Sunny Friend 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 Sunny Friend Environmental are associated (or correlated) with Higher Way. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Higher Way Electronic has no effect on the direction of Sunny Friend i.e., Sunny Friend and Higher Way go up and down completely randomly.

Pair Corralation between Sunny Friend and Higher Way

Assuming the 90 days trading horizon Sunny Friend Environmental is expected to generate 0.45 times more return on investment than Higher Way. However, Sunny Friend Environmental is 2.22 times less risky than Higher Way. It trades about -0.04 of its potential returns per unit of risk. Higher Way Electronic is currently generating about -0.09 per unit of risk. If you would invest  8,700  in Sunny Friend Environmental on December 22, 2024 and sell it today you would lose (220.00) from holding Sunny Friend Environmental or give up 2.53% of portfolio value over 90 days.

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

Sunny Friend Environmental  vs.  Higher Way Electronic

Sunny Friend Environ

Risk-Adjusted Performance

Very Weak

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

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 weak 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 Sunny Friend and Higher Way

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

The idea behind Sunny Friend Environmental and Higher Way Electronic 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 Transaction History module to view history of all your transactions and understand their impact on performance.