Correlation Between River and Sunny Optical

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

By analyzing existing cross correlation between River and Mercantile and Sunny Optical Technology, you can compare the effects of market volatilities on River and Sunny Optical 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 River with a short position of Sunny Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of River and Sunny Optical.

Diversification Opportunities for River and Sunny Optical

0.54

Correlation Coefficient

River  Sunny Optical

Very weak diversification

The 3 months correlation between River and Sunny is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and Sunny Optical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunny Optical Technology and River 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 River and Mercantile are associated (or correlated) with Sunny Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunny Optical Technology has no effect on the direction of River i.e., River and Sunny Optical go up and down completely randomly.

Pair Corralation between River and Sunny Optical

Assuming the 90 days trading horizon River and Mercantile is expected to generate 0.32 times more return on investment than Sunny Optical. However, River and Mercantile is 3.1 times less risky than Sunny Optical. It trades about 0.04 of its potential returns per unit of risk. Sunny Optical Technology is currently generating about 0.0 per unit of risk. If you would invest  15,100  in River and Mercantile on October 5, 2024 and sell it today you would earn a total of  2,650  from holding River and Mercantile or generate 17.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.75%
Values	Daily Returns

River and Mercantile  vs.  Sunny Optical Technology

River and Mercantile

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Sunny Optical Technology

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sunny Optical Technology are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sunny Optical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with River and Sunny Optical

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

The idea behind River and Mercantile and Sunny Optical Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.