Correlation Between Amada and Sunlands Technology

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

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

Diversification Opportunities for Amada and Sunlands Technology

0.42

Correlation Coefficient

Amada  Sunlands Technology

Very weak diversification

The 3 months correlation between Amada and Sunlands is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Amada Co and Sunlands Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunlands Technology and Amada 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 Amada Co are associated (or correlated) with Sunlands Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunlands Technology has no effect on the direction of Amada i.e., Amada and Sunlands Technology go up and down completely randomly.

Pair Corralation between Amada and Sunlands Technology

Assuming the 90 days horizon Amada Co is expected to generate 0.22 times more return on investment than Sunlands Technology. However, Amada Co is 4.47 times less risky than Sunlands Technology. It trades about -0.22 of its potential returns per unit of risk. Sunlands Technology Group is currently generating about -0.28 per unit of risk. If you would invest  4,599  in Amada Co on January 30, 2024 and sell it today you would lose (145.00) from holding Amada Co or give up 3.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Amada Co  vs.  Sunlands Technology Group

Amada

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amada Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Amada may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Sunlands Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunlands Technology Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Amada and Sunlands Technology

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

The idea behind Amada Co and Sunlands Technology Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.