Correlation Between U Power and Sonic Automotive

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

By analyzing existing cross correlation between U Power Limited and Sonic Automotive, you can compare the effects of market volatilities on U Power and Sonic Automotive 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 U Power with a short position of Sonic Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of U Power and Sonic Automotive.

Diversification Opportunities for U Power and Sonic Automotive

-0.19

Correlation Coefficient

U Power  Sonic Automotive

Good diversification

The 3 months correlation between UCAR and Sonic is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding U Power Limited and Sonic Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Automotive and U Power 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 U Power Limited are associated (or correlated) with Sonic Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Automotive has no effect on the direction of U Power i.e., U Power and Sonic Automotive go up and down completely randomly.

Pair Corralation between U Power and Sonic Automotive

Given the investment horizon of 90 days U Power Limited is expected to under-perform the Sonic Automotive. In addition to that, U Power is 4.27 times more volatile than Sonic Automotive. It trades about -0.13 of its total potential returns per unit of risk. Sonic Automotive is currently generating about 0.01 per unit of volatility. If you would invest  6,322  in Sonic Automotive on December 27, 2024 and sell it today you would lose (37.00) from holding Sonic Automotive or give up 0.59% of portfolio value over 90 days.

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

U Power Limited  vs.  Sonic Automotive

U Power Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days U Power Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Sonic Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonic Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Sonic Automotive is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with U Power and Sonic Automotive

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

The idea behind U Power Limited and Sonic Automotive 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.