Correlation Between BCE and Universal Power

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

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

Diversification Opportunities for BCE and Universal Power

-0.43

Correlation Coefficient

BCE  Universal Power

Very good diversification

The 3 months correlation between BCE and Universal is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Universal Power Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Power Industry and BCE 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 BCE Inc are associated (or correlated) with Universal Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Power Industry has no effect on the direction of BCE i.e., BCE and Universal Power go up and down completely randomly.

Pair Corralation between BCE and Universal Power

Assuming the 90 days horizon BCE Inc is expected to generate 1.07 times more return on investment than Universal Power. However, BCE is 1.07 times more volatile than Universal Power Industry. It trades about 0.13 of its potential returns per unit of risk. Universal Power Industry is currently generating about -0.13 per unit of risk. If you would invest  1,069  in BCE Inc on August 31, 2024 and sell it today you would earn a total of  31.00  from holding BCE Inc or generate 2.9% return on investment over 90 days.

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

BCE Inc  vs.  Universal Power Industry

BCE Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BCE Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BCE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Universal Power Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Power Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Universal Power is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BCE and Universal Power

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

The idea behind BCE Inc and Universal Power Industry 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.