Correlation Between Barnes and Union Pacific

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

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

Diversification Opportunities for Barnes and Union Pacific

0.46

Correlation Coefficient

Barnes  Union Pacific

Very weak diversification

The 3 months correlation between Barnes and Union is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Barnes Group and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific and Barnes 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 Barnes Group are associated (or correlated) with Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Barnes i.e., Barnes and Union Pacific go up and down completely randomly.

Pair Corralation between Barnes and Union Pacific

Taking into account the 90-day investment horizon Barnes is expected to generate 2.52 times less return on investment than Union Pacific. But when comparing it to its historical volatility, Barnes Group is 17.23 times less risky than Union Pacific. It trades about 0.39 of its potential returns per unit of risk. Union Pacific is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  22,867  in Union Pacific on December 27, 2024 and sell it today you would earn a total of  936.00  from holding Union Pacific or generate 4.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	31.67%
Values	Daily Returns

Barnes Group  vs.  Union Pacific

Barnes Group

Risk-Adjusted Performance

Strong

Over the last 90 days Barnes Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Barnes is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Union Pacific

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Union Pacific are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Barnes and Union Pacific

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

The idea behind Barnes Group and Union Pacific 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.