Correlation Between Albemarle and Universal

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

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

Diversification Opportunities for Albemarle and Universal

0.33

Correlation Coefficient

Albemarle  Universal

Weak diversification

The 3 months correlation between Albemarle and Universal is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Albemarle and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and Albemarle 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 Albemarle are associated (or correlated) with Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Albemarle i.e., Albemarle and Universal go up and down completely randomly.

Pair Corralation between Albemarle and Universal

Assuming the 90 days trading horizon Albemarle is expected to under-perform the Universal. In addition to that, Albemarle is 2.32 times more volatile than Universal. It trades about -0.27 of its total potential returns per unit of risk. Universal is currently generating about -0.22 per unit of volatility. If you would invest  5,686  in Universal on October 6, 2024 and sell it today you would lose (219.00) from holding Universal or give up 3.85% of portfolio value over 90 days.

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

Albemarle  vs.  Universal

Albemarle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Albemarle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Universal

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Universal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Albemarle and Universal

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

The idea behind Albemarle and Universal 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.