Correlation Between Universal Insurance and Elanco Animal

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

By analyzing existing cross correlation between Universal Insurance Holdings and Elanco Animal Health, you can compare the effects of market volatilities on Universal Insurance and Elanco Animal 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 Insurance with a short position of Elanco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Insurance and Elanco Animal.

Diversification Opportunities for Universal Insurance and Elanco Animal

0.38

Correlation Coefficient

Universal Insurance  Elanco Animal

Weak diversification

The 3 months correlation between Universal and Elanco is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Elanco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elanco Animal Health and Universal Insurance 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 Insurance Holdings are associated (or correlated) with Elanco Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elanco Animal Health has no effect on the direction of Universal Insurance i.e., Universal Insurance and Elanco Animal go up and down completely randomly.

Pair Corralation between Universal Insurance and Elanco Animal

Assuming the 90 days horizon Universal Insurance Holdings is expected to generate 0.89 times more return on investment than Elanco Animal. However, Universal Insurance Holdings is 1.12 times less risky than Elanco Animal. It trades about 0.01 of its potential returns per unit of risk. Elanco Animal Health is currently generating about -0.05 per unit of risk. If you would invest  2,124  in Universal Insurance Holdings on December 5, 2024 and sell it today you would lose (4.00) from holding Universal Insurance Holdings or give up 0.19% of portfolio value over 90 days.

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

Universal Insurance Holdings  vs.  Elanco Animal Health

Universal Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Elanco Animal Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days Elanco Animal Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Universal Insurance and Elanco Animal

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

The idea behind Universal Insurance Holdings and Elanco Animal Health 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..