Correlation Between Universal Insurance and Salesforce

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

Diversification Opportunities for Universal Insurance and Salesforce

0.75

Correlation Coefficient

Universal Insurance  Salesforce

Poor diversification

The 3 months correlation between Universal and Salesforce is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Universal Insurance i.e., Universal Insurance and Salesforce go up and down completely randomly.

Pair Corralation between Universal Insurance and Salesforce

Assuming the 90 days horizon Universal Insurance is expected to generate 3.56 times less return on investment than Salesforce. But when comparing it to its historical volatility, Universal Insurance Holdings is 1.14 times less risky than Salesforce. It trades about 0.04 of its potential returns per unit of risk. Salesforce is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  26,459  in Salesforce on October 24, 2024 and sell it today you would earn a total of  4,921  from holding Salesforce or generate 18.6% return on investment over 90 days.

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

Universal Insurance Holdings  vs.  Salesforce

Universal Insurance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Universal Insurance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Salesforce

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Salesforce unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Insurance and Salesforce

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

The idea behind Universal Insurance Holdings and Salesforce 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 Transaction History module to view history of all your transactions and understand their impact on performance.