Correlation Between Sono Tek and Luna Innovations

Can any of the company-specific risk be diversified away by investing in both Sono Tek and Luna Innovations 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 Luna Innovations 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 Luna Innovations Incorporated, you can compare the effects of market volatilities on Sono Tek and Luna Innovations 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 Luna Innovations. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sono Tek and Luna Innovations.

Diversification Opportunities for Sono Tek and Luna Innovations

-0.63

Correlation Coefficient

Sono Tek  Luna Innovations

Excellent diversification

The 3 months correlation between Sono and Luna is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sono Tek Corp and Luna Innovations Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luna Innovations 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 Luna Innovations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luna Innovations has no effect on the direction of Sono Tek i.e., Sono Tek and Luna Innovations go up and down completely randomly.

Pair Corralation between Sono Tek and Luna Innovations

Given the investment horizon of 90 days Sono Tek Corp is expected to generate 0.44 times more return on investment than Luna Innovations. However, Sono Tek Corp is 2.29 times less risky than Luna Innovations. It trades about 0.1 of its potential returns per unit of risk. Luna Innovations Incorporated is currently generating about -0.06 per unit of risk. If you would invest  414.00  in Sono Tek Corp on September 2, 2024 and sell it today you would earn a total of  60.00  from holding Sono Tek Corp or generate 14.49% return on investment over 90 days.

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

Sono Tek Corp  vs.  Luna Innovations Incorporated

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.

Luna Innovations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luna Innovations Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sono Tek and Luna Innovations

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

The idea behind Sono Tek Corp and Luna Innovations Incorporated 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.