Correlation Between Sea and ScanSource

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

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

Diversification Opportunities for Sea and ScanSource

0.52

Correlation Coefficient

Sea  ScanSource

Very weak diversification

The 3 months correlation between Sea and ScanSource is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sea and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and Sea 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 Sea are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of Sea i.e., Sea and ScanSource go up and down completely randomly.

Pair Corralation between Sea and ScanSource

Allowing for the 90-day total investment horizon Sea is expected to generate 1.42 times more return on investment than ScanSource. However, Sea is 1.42 times more volatile than ScanSource. It trades about 0.3 of its potential returns per unit of risk. ScanSource is currently generating about 0.08 per unit of risk. If you would invest  5,528  in Sea on February 5, 2024 and sell it today you would earn a total of  1,138  from holding Sea or generate 20.59% return on investment over 90 days.

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

Sea  vs.  ScanSource

Sea

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

ScanSource

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Sea and ScanSource

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

The idea behind Sea and ScanSource 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.