Correlation Between Summit Materials and Pono Capital

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

By analyzing existing cross correlation between Summit Materials and Pono Capital Two, you can compare the effects of market volatilities on Summit Materials and Pono Capital 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 Summit Materials with a short position of Pono Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and Pono Capital.

Diversification Opportunities for Summit Materials and Pono Capital

0.18

Correlation Coefficient

Summit Materials  Pono Capital

Average diversification

The 3 months correlation between Summit and Pono is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Pono Capital Two in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pono Capital Two and Summit Materials 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 Summit Materials are associated (or correlated) with Pono Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pono Capital Two has no effect on the direction of Summit Materials i.e., Summit Materials and Pono Capital go up and down completely randomly.

Pair Corralation between Summit Materials and Pono Capital

Considering the 90-day investment horizon Summit Materials is expected to generate 98.7 times less return on investment than Pono Capital. But when comparing it to its historical volatility, Summit Materials is 55.04 times less risky than Pono Capital. It trades about 0.07 of its potential returns per unit of risk. Pono Capital Two is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5.51  in Pono Capital Two on September 20, 2024 and sell it today you would earn a total of  1.79  from holding Pono Capital Two or generate 32.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	50.0%
Values	Daily Returns

Summit Materials  vs.  Pono Capital Two

Summit Materials

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pono Capital Two

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pono Capital Two has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pono Capital is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Summit Materials and Pono Capital

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

The idea behind Summit Materials and Pono Capital Two 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.