Correlation Between Union Materials and Automobile

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

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

Diversification Opportunities for Union Materials and Automobile

0.14

Correlation Coefficient

Union Materials  Automobile

Average diversification

The 3 months correlation between Union and Automobile is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Union Materials Corp and Automobile Pc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automobile Pc and Union Materials 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 Union Materials Corp are associated (or correlated) with Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automobile Pc has no effect on the direction of Union Materials i.e., Union Materials and Automobile go up and down completely randomly.

Pair Corralation between Union Materials and Automobile

Assuming the 90 days trading horizon Union Materials Corp is expected to generate 1.23 times more return on investment than Automobile. However, Union Materials is 1.23 times more volatile than Automobile Pc. It trades about 0.01 of its potential returns per unit of risk. Automobile Pc is currently generating about -0.04 per unit of risk. If you would invest  257,500  in Union Materials Corp on September 19, 2024 and sell it today you would lose (24,500) from holding Union Materials Corp or give up 9.51% of portfolio value over 90 days.

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

Union Materials Corp  vs.  Automobile Pc

Union Materials Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Union Materials Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Automobile Pc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Automobile Pc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Automobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Union Materials and Automobile

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

The idea behind Union Materials Corp and Automobile Pc 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.