Correlation Between Universal Textile and Lily Textile

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

Diversification Opportunities for Universal Textile and Lily Textile

-0.06

Correlation Coefficient

Universal Textile  Lily Textile

Good diversification

The 3 months correlation between Universal and Lily is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Universal Textile Co and Lily Textile Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lily Textile 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 Lily Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lily Textile has no effect on the direction of Universal Textile i.e., Universal Textile and Lily Textile go up and down completely randomly.

Pair Corralation between Universal Textile and Lily Textile

Assuming the 90 days trading horizon Universal Textile Co is expected to generate 0.98 times more return on investment than Lily Textile. However, Universal Textile Co is 1.02 times less risky than Lily Textile. It trades about -0.05 of its potential returns per unit of risk. Lily Textile Co is currently generating about -0.05 per unit of risk. If you would invest  1,730  in Universal Textile Co on December 22, 2024 and sell it today you would lose (55.00) from holding Universal Textile Co or give up 3.18% of portfolio value over 90 days.

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

Universal Textile Co  vs.  Lily Textile Co

Universal Textile

Risk-Adjusted Performance

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 fairly stable basic indicators, Universal Textile is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lily Textile

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lily Textile Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lily Textile is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Universal Textile and Lily Textile

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

The idea behind Universal Textile Co and Lily Textile Co 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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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.