Correlation Between Sono Tek and Electro Sensors

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

By analyzing existing cross correlation between Sono Tek Corp and Electro Sensors, you can compare the effects of market volatilities on Sono Tek and Electro Sensors 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 Sono Tek with a short position of Electro Sensors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sono Tek and Electro Sensors.

Diversification Opportunities for Sono Tek and Electro Sensors

0.48

Correlation Coefficient

Sono Tek  Electro Sensors

Very weak diversification

The 3 months correlation between Sono and Electro is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sono Tek Corp and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors and Sono Tek 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 Sono Tek Corp are associated (or correlated) with Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of Sono Tek i.e., Sono Tek and Electro Sensors go up and down completely randomly.

Pair Corralation between Sono Tek and Electro Sensors

Given the investment horizon of 90 days Sono Tek Corp is expected to generate 0.71 times more return on investment than Electro Sensors. However, Sono Tek Corp is 1.41 times less risky than Electro Sensors. It trades about 0.3 of its potential returns per unit of risk. Electro Sensors is currently generating about 0.18 per unit of risk. If you would invest  427.00  in Sono Tek Corp on September 2, 2024 and sell it today you would earn a total of  47.00  from holding Sono Tek Corp or generate 11.01% return on investment over 90 days.

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

Sono Tek Corp  vs.  Electro Sensors

Sono Tek Corp

Risk-Adjusted Performance

7 of 100

OK

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

Electro Sensors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electro Sensors are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Electro Sensors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sono Tek and Electro Sensors

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

The idea behind Sono Tek Corp and Electro Sensors 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 Anywhere module to track or share privately all of your investments from the convenience of any device.