Correlation Between Universal Textile and Reward Wool

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

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

Diversification Opportunities for Universal Textile and Reward Wool

0.83

Correlation Coefficient

Universal Textile  Reward Wool

Very poor diversification

The 3 months correlation between Universal and Reward is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Universal Textile Co and Reward Wool Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reward Wool Industry and Universal Textile 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 Universal Textile Co are associated (or correlated) with Reward Wool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reward Wool Industry has no effect on the direction of Universal Textile i.e., Universal Textile and Reward Wool go up and down completely randomly.

Pair Corralation between Universal Textile and Reward Wool

Assuming the 90 days trading horizon Universal Textile Co is expected to under-perform the Reward Wool. In addition to that, Universal Textile is 3.63 times more volatile than Reward Wool Industry. It trades about -0.12 of its total potential returns per unit of risk. Reward Wool Industry is currently generating about 0.06 per unit of volatility. If you would invest  3,650  in Reward Wool Industry on October 23, 2024 and sell it today you would earn a total of  15.00  from holding Reward Wool Industry or generate 0.41% return on investment over 90 days.

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

Universal Textile Co  vs.  Reward Wool Industry

Universal Textile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Textile Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Reward Wool Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reward Wool Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Universal Textile and Reward Wool

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

The idea behind Universal Textile Co and Reward Wool Industry 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.