Correlation Between SunPower and Analog Devices

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

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

Diversification Opportunities for SunPower and Analog Devices

0.17

Correlation Coefficient

SunPower  Analog Devices

Average diversification

The 3 months correlation between SunPower and Analog is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding SunPower and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and SunPower 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 SunPower are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of SunPower i.e., SunPower and Analog Devices go up and down completely randomly.

Pair Corralation between SunPower and Analog Devices

Given the investment horizon of 90 days SunPower is expected to generate 5.09 times more return on investment than Analog Devices. However, SunPower is 5.09 times more volatile than Analog Devices. It trades about 0.05 of its potential returns per unit of risk. Analog Devices is currently generating about 0.17 per unit of risk. If you would invest  300.00  in SunPower on February 27, 2024 and sell it today you would lose (8.00) from holding SunPower or give up 2.67% of portfolio value over 90 days.

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

SunPower  vs.  Analog Devices

SunPower

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SunPower are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, SunPower reported solid returns over the last few months and may actually be approaching a breakup point.

Analog Devices

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental indicators, Analog Devices demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SunPower and Analog Devices

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

The idea behind SunPower and Analog Devices 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 Transaction History module to view history of all your transactions and understand their impact on performance.