Correlation Between Universal Insurance and Walt Disney

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

Diversification Opportunities for Universal Insurance and Walt Disney

0.67

Correlation Coefficient

Universal Insurance  Walt Disney

Poor diversification

The 3 months correlation between Universal and Walt is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and The Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Walt Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Universal Insurance i.e., Universal Insurance and Walt Disney go up and down completely randomly.

Pair Corralation between Universal Insurance and Walt Disney

Assuming the 90 days horizon Universal Insurance Holdings is expected to under-perform the Walt Disney. In addition to that, Universal Insurance is 1.56 times more volatile than The Walt Disney. It trades about -0.26 of its total potential returns per unit of risk. The Walt Disney is currently generating about -0.13 per unit of volatility. If you would invest  10,981  in The Walt Disney on October 25, 2024 and sell it today you would lose (527.00) from holding The Walt Disney or give up 4.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.44%
Values	Daily Returns

Universal Insurance Holdings  vs.  The Walt Disney

Universal Insurance

Risk-Adjusted Performance

0 of 100

Insignificant

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.

Walt Disney

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Walt Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Insurance and Walt Disney

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

The idea behind Universal Insurance Holdings and The Walt Disney 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.