Correlation Between Forestar and Sun Hung

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

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

Diversification Opportunities for Forestar and Sun Hung

0.24

Correlation Coefficient

Forestar  Sun Hung

Modest diversification

The 3 months correlation between Forestar and Sun is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Forestar Group and Sun Hung Kai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Hung Kai and Forestar 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 Forestar Group are associated (or correlated) with Sun Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Hung Kai has no effect on the direction of Forestar i.e., Forestar and Sun Hung go up and down completely randomly.

Pair Corralation between Forestar and Sun Hung

Considering the 90-day investment horizon Forestar is expected to generate 1.63 times less return on investment than Sun Hung. In addition to that, Forestar is 1.91 times more volatile than Sun Hung Kai. It trades about 0.02 of its total potential returns per unit of risk. Sun Hung Kai is currently generating about 0.08 per unit of volatility. If you would invest  954.00  in Sun Hung Kai on February 23, 2024 and sell it today you would earn a total of  61.00  from holding Sun Hung Kai or generate 6.39% return on investment over 90 days.

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

Forestar Group  vs.  Sun Hung Kai

Forestar Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Forestar Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Forestar is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Sun Hung Kai

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking indicators, Sun Hung may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Forestar and Sun Hung

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

The idea behind Forestar Group and Sun Hung Kai 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.