Correlation Between Beco Steel and United Insurance

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

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

Diversification Opportunities for Beco Steel and United Insurance

0.15

Correlation Coefficient

Beco Steel  United Insurance

Average diversification

The 3 months correlation between Beco and United is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Beco Steel and United Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance and Beco Steel 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 Beco Steel are associated (or correlated) with United Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Insurance has no effect on the direction of Beco Steel i.e., Beco Steel and United Insurance go up and down completely randomly.

Pair Corralation between Beco Steel and United Insurance

Assuming the 90 days trading horizon Beco Steel is expected to generate 20.48 times less return on investment than United Insurance. In addition to that, Beco Steel is 1.2 times more volatile than United Insurance. It trades about 0.0 of its total potential returns per unit of risk. United Insurance is currently generating about 0.12 per unit of volatility. If you would invest  467.00  in United Insurance on October 10, 2024 and sell it today you would earn a total of  1,144  from holding United Insurance or generate 244.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.71%
Values	Daily Returns

Beco Steel  vs.  United Insurance

Beco Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beco Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beco Steel sustained solid returns over the last few months and may actually be approaching a breakup point.

United Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, United Insurance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Beco Steel and United Insurance

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

The idea behind Beco Steel and United Insurance 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.