Correlation Between Universal Insurance and MGP Ingredients

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

Diversification Opportunities for Universal Insurance and MGP Ingredients

-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Universal and MGP is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and MGP Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGP Ingredients 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 MGP Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGP Ingredients has no effect on the direction of Universal Insurance i.e., Universal Insurance and MGP Ingredients go up and down completely randomly.

Pair Corralation between Universal Insurance and MGP Ingredients

Assuming the 90 days horizon Universal Insurance Holdings is expected to generate 0.52 times more return on investment than MGP Ingredients. However, Universal Insurance Holdings is 1.93 times less risky than MGP Ingredients. It trades about 0.1 of its potential returns per unit of risk. MGP Ingredients is currently generating about -0.27 per unit of risk. If you would invest  1,717  in Universal Insurance Holdings on October 12, 2024 and sell it today you would earn a total of  193.00  from holding Universal Insurance Holdings or generate 11.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Universal Insurance Holdings  vs.  MGP Ingredients

 Performance 
       Timeline  
Universal Insurance 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Universal Insurance reported solid returns over the last few months and may actually be approaching a breakup point.
MGP Ingredients 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Universal Insurance and MGP Ingredients Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Universal Insurance and MGP Ingredients

The main advantage of trading using opposite Universal Insurance and MGP Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Insurance position performs unexpectedly, MGP Ingredients 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 MGP Ingredients will offset losses from the drop in MGP Ingredients' long position.
The idea behind Universal Insurance Holdings and MGP Ingredients 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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