Correlation Between Trimble and Sono Tek

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

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

Diversification Opportunities for Trimble and Sono Tek

0.72

Correlation Coefficient

Trimble  Sono Tek

Poor diversification

The 3 months correlation between Trimble and Sono is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Trimble and Sono Tek Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sono Tek Corp and Trimble 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 Trimble are associated (or correlated) with Sono Tek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sono Tek Corp has no effect on the direction of Trimble i.e., Trimble and Sono Tek go up and down completely randomly.

Pair Corralation between Trimble and Sono Tek

Given the investment horizon of 90 days Trimble is expected to generate 0.69 times more return on investment than Sono Tek. However, Trimble is 1.45 times less risky than Sono Tek. It trades about 0.07 of its potential returns per unit of risk. Sono Tek Corp is currently generating about -0.02 per unit of risk. If you would invest  5,320  in Trimble on September 24, 2024 and sell it today you would earn a total of  1,800  from holding Trimble or generate 33.83% return on investment over 90 days.

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

Trimble  vs.  Sono Tek Corp

Trimble

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trimble are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal primary indicators, Trimble sustained solid returns over the last few months and may actually be approaching a breakup point.

Sono Tek Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sono Tek Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Sono Tek may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Trimble and Sono Tek

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

The idea behind Trimble and Sono Tek Corp 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.