Correlation Between Kanzhun and Sonic Automotive

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

By analyzing existing cross correlation between Kanzhun Ltd ADR and Sonic Automotive, you can compare the effects of market volatilities on Kanzhun and Sonic Automotive 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 Kanzhun with a short position of Sonic Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kanzhun and Sonic Automotive.

Diversification Opportunities for Kanzhun and Sonic Automotive

-0.51

Correlation Coefficient

Kanzhun  Sonic Automotive

Excellent diversification

The 3 months correlation between Kanzhun and Sonic is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Kanzhun Ltd ADR and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and Kanzhun 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 Kanzhun Ltd ADR are associated (or correlated) with Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of Kanzhun i.e., Kanzhun and Sonic Automotive go up and down completely randomly.

Pair Corralation between Kanzhun and Sonic Automotive

Allowing for the 90-day total investment horizon Kanzhun Ltd ADR is expected to generate 1.26 times more return on investment than Sonic Automotive. However, Kanzhun is 1.26 times more volatile than Sonic Automotive. It trades about 0.22 of its potential returns per unit of risk. Sonic Automotive is currently generating about -0.06 per unit of risk. If you would invest  1,387  in Kanzhun Ltd ADR on December 27, 2024 and sell it today you would earn a total of  619.00  from holding Kanzhun Ltd ADR or generate 44.63% return on investment over 90 days.

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

Kanzhun Ltd ADR  vs.  Sonic Automotive

Kanzhun Ltd ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kanzhun Ltd ADR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Kanzhun showed solid returns over the last few months and may actually be approaching a breakup point.

Sonic Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonic Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Kanzhun and Sonic Automotive

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

The idea behind Kanzhun Ltd ADR and Sonic Automotive 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.