Correlation Between Sonic Automotive and U Power

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

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

Diversification Opportunities for Sonic Automotive and U Power

-0.4

Correlation Coefficient

Sonic Automotive  U Power

Very good diversification

The 3 months correlation between Sonic and UCAR is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Automotive and U Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on U Power Limited and Sonic Automotive 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 Sonic Automotive are associated (or correlated) with U Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of U Power Limited has no effect on the direction of Sonic Automotive i.e., Sonic Automotive and U Power go up and down completely randomly.

Pair Corralation between Sonic Automotive and U Power

Considering the 90-day investment horizon Sonic Automotive is expected to under-perform the U Power. But the stock apears to be less risky and, when comparing its historical volatility, Sonic Automotive is 4.35 times less risky than U Power. The stock trades about -0.24 of its potential returns per unit of risk. The U Power Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  714.00  in U Power Limited on October 8, 2024 and sell it today you would earn a total of  83.00  from holding U Power Limited or generate 11.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Sonic Automotive  vs.  U Power Limited

Sonic Automotive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Automotive are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Sonic Automotive demonstrated solid returns over the last few months and may actually be approaching a breakup point.

U Power Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in U Power Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, U Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonic Automotive and U Power

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

The idea behind Sonic Automotive and U Power Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.