Correlation Between Union Materials and Choil Aluminum

Can any of the company-specific risk be diversified away by investing in both Union Materials and Choil Aluminum 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 Choil Aluminum 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 Choil Aluminum, you can compare the effects of market volatilities on Union Materials and Choil Aluminum 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 Choil Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Materials and Choil Aluminum.

Diversification Opportunities for Union Materials and Choil Aluminum

0.25

Correlation Coefficient

Union Materials  Choil Aluminum

Modest diversification

The 3 months correlation between Union and Choil is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Union Materials Corp and Choil Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choil Aluminum 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 Choil Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choil Aluminum has no effect on the direction of Union Materials i.e., Union Materials and Choil Aluminum go up and down completely randomly.

Pair Corralation between Union Materials and Choil Aluminum

Assuming the 90 days trading horizon Union Materials Corp is expected to under-perform the Choil Aluminum. In addition to that, Union Materials is 1.34 times more volatile than Choil Aluminum. It trades about -0.02 of its total potential returns per unit of risk. Choil Aluminum is currently generating about 0.08 per unit of volatility. If you would invest  146,300  in Choil Aluminum on December 4, 2024 and sell it today you would earn a total of  13,300  from holding Choil Aluminum or generate 9.09% return on investment over 90 days.

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

Union Materials Corp  vs.  Choil Aluminum

Union Materials Corp

Risk-Adjusted Performance

Very Weak

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

Choil Aluminum

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Choil Aluminum are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Choil Aluminum may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Union Materials and Choil Aluminum

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

The idea behind Union Materials Corp and Choil Aluminum 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..