Correlation Between Daqo New and Sunrun

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Can any of the company-specific risk be diversified away by investing in both Daqo New and Sunrun 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 Daqo New and Sunrun into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Daqo New Energy and Sunrun Inc, you can compare the effects of market volatilities on Daqo New and Sunrun 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 Daqo New with a short position of Sunrun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daqo New and Sunrun.

Diversification Opportunities for Daqo New and Sunrun

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Daqo New and Sunrun is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and Sunrun Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunrun Inc and Daqo New 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 Daqo New Energy are associated (or correlated) with Sunrun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunrun Inc has no effect on the direction of Daqo New i.e., Daqo New and Sunrun go up and down completely randomly.

Pair Corralation between Daqo New and Sunrun

Allowing for the 90-day total investment horizon Daqo New Energy is expected to generate 1.05 times more return on investment than Sunrun. However, Daqo New is 1.05 times more volatile than Sunrun Inc. It trades about 0.04 of its potential returns per unit of risk. Sunrun Inc is currently generating about 0.0 per unit of risk. If you would invest  4,102  in Daqo New Energy on August 31, 2022 and sell it today you would earn a total of  1,092  from holding Daqo New Energy or generate 26.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Daqo New Energy  vs.  Sunrun Inc

 Performance (%) 
       Timeline  
Daqo New Energy 
Daqo New Performance
0 of 100
Over the last 90 days Daqo New Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2022. The recent disarray may also be a sign of long period up-swing for the firm insiders.

Daqo New Price Channel

Sunrun Inc 
Sunrun Performance
0 of 100
Over the last 90 days Sunrun Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Sunrun is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sunrun Price Channel

Daqo New and Sunrun Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Daqo New and Sunrun

The main advantage of trading using opposite Daqo New and Sunrun positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daqo New position performs unexpectedly, Sunrun 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 Sunrun will offset losses from the drop in Sunrun's long position.
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The idea behind Daqo New Energy and Sunrun Inc 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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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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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