Correlation Between Boston Beer and Universal Entertainment

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

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

Diversification Opportunities for Boston Beer and Universal Entertainment

-0.12

Correlation Coefficient

Boston Beer  Universal Entertainment

Good diversification

The 3 months correlation between Boston and Universal is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding The Boston Beer and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment and Boston Beer 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 The Boston Beer are associated (or correlated) with Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of Boston Beer i.e., Boston Beer and Universal Entertainment go up and down completely randomly.

Pair Corralation between Boston Beer and Universal Entertainment

Assuming the 90 days trading horizon The Boston Beer is expected to generate 0.45 times more return on investment than Universal Entertainment. However, The Boston Beer is 2.21 times less risky than Universal Entertainment. It trades about -0.1 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.05 per unit of risk. If you would invest  27,240  in The Boston Beer on October 22, 2024 and sell it today you would lose (2,840) from holding The Boston Beer or give up 10.43% of portfolio value over 90 days.

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

The Boston Beer  vs.  Universal Entertainment

Boston Beer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Boston Beer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Universal Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Boston Beer and Universal Entertainment

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

The idea behind The Boston Beer and Universal Entertainment 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.