Correlation Between PSI All and Sonida Senior

Can any of the company-specific risk be diversified away by investing in both PSI All and Sonida Senior 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 PSI All and Sonida Senior into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PSI All Share and Sonida Senior Living, you can compare the effects of market volatilities on PSI All and Sonida Senior 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 PSI All with a short position of Sonida Senior. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSI All and Sonida Senior.

Diversification Opportunities for PSI All and Sonida Senior

0.22

Correlation Coefficient

PSI All  Sonida Senior

Modest diversification

The 3 months correlation between PSI and Sonida is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding PSI All Share and Sonida Senior Living in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonida Senior Living and PSI All 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 PSI All Share are associated (or correlated) with Sonida Senior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonida Senior Living has no effect on the direction of PSI All i.e., PSI All and Sonida Senior go up and down completely randomly.

Pair Corralation between PSI All and Sonida Senior

Assuming the 90 days trading horizon PSI All Share is expected to generate 0.24 times more return on investment than Sonida Senior. However, PSI All Share is 4.1 times less risky than Sonida Senior. It trades about -0.07 of its potential returns per unit of risk. Sonida Senior Living is currently generating about -0.11 per unit of risk. If you would invest  424,932  in PSI All Share on October 9, 2024 and sell it today you would lose (7,290) from holding PSI All Share or give up 1.72% of portfolio value over 90 days.

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

PSI All Share  vs.  Sonida Senior Living

Pair Trading with PSI All and Sonida Senior

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

The idea behind PSI All Share and Sonida Senior Living 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.