Correlation Between Stepstone and Sun Country

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

By analyzing existing cross correlation between Stepstone Group and Sun Country Airlines, you can compare the effects of market volatilities on Stepstone and Sun Country 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 Stepstone with a short position of Sun Country. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Sun Country.

Diversification Opportunities for Stepstone and Sun Country

0.74

Correlation Coefficient

Stepstone  Sun Country

Poor diversification

The 3 months correlation between Stepstone and Sun is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Sun Country Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Country Airlines and Stepstone 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 Stepstone Group are associated (or correlated) with Sun Country. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Country Airlines has no effect on the direction of Stepstone i.e., Stepstone and Sun Country go up and down completely randomly.

Pair Corralation between Stepstone and Sun Country

Given the investment horizon of 90 days Stepstone is expected to generate 1.42 times less return on investment than Sun Country. But when comparing it to its historical volatility, Stepstone Group is 1.64 times less risky than Sun Country. It trades about 0.16 of its potential returns per unit of risk. Sun Country Airlines is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,098  in Sun Country Airlines on September 2, 2024 and sell it today you would earn a total of  341.00  from holding Sun Country Airlines or generate 31.06% return on investment over 90 days.

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

Stepstone Group  vs.  Sun Country Airlines

Stepstone Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Sun Country Airlines

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Country Airlines are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Sun Country showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and Sun Country

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

The idea behind Stepstone Group and Sun Country Airlines 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.