Correlation Between Cosan SA and Sunoco LP

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

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

Diversification Opportunities for Cosan SA and Sunoco LP

-0.46

Correlation Coefficient

Cosan SA  Sunoco LP

Very good diversification

The 3 months correlation between Cosan and Sunoco is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Cosan SA ADR and Sunoco LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunoco LP and Cosan SA 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 Cosan SA ADR are associated (or correlated) with Sunoco LP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunoco LP has no effect on the direction of Cosan SA i.e., Cosan SA and Sunoco LP go up and down completely randomly.

Pair Corralation between Cosan SA and Sunoco LP

Given the investment horizon of 90 days Cosan SA is expected to generate 3.27 times less return on investment than Sunoco LP. In addition to that, Cosan SA is 2.87 times more volatile than Sunoco LP. It trades about 0.02 of its total potential returns per unit of risk. Sunoco LP is currently generating about 0.22 per unit of volatility. If you would invest  5,015  in Sunoco LP on December 28, 2024 and sell it today you would earn a total of  845.00  from holding Sunoco LP or generate 16.85% return on investment over 90 days.

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

Cosan SA ADR  vs.  Sunoco LP

Cosan SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cosan SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Cosan SA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Sunoco LP

Risk-Adjusted Performance

Solid

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

Pair Trading with Cosan SA and Sunoco LP

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

The idea behind Cosan SA ADR and Sunoco LP 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.