Correlation Between BRP and United Fire

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

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

Diversification Opportunities for BRP and United Fire

-0.6

Correlation Coefficient

BRP  United Fire

Excellent diversification

The 3 months correlation between BRP and United is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group and BRP 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 BRP Inc are associated (or correlated) with United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of BRP i.e., BRP and United Fire go up and down completely randomly.

Pair Corralation between BRP and United Fire

Given the investment horizon of 90 days BRP is expected to generate 9.82 times less return on investment than United Fire. But when comparing it to its historical volatility, BRP Inc is 1.92 times less risky than United Fire. It trades about 0.04 of its potential returns per unit of risk. United Fire Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,001  in United Fire Group on September 24, 2024 and sell it today you would earn a total of  894.00  from holding United Fire Group or generate 44.68% return on investment over 90 days.

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

BRP Inc  vs.  United Fire Group

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

United Fire Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BRP and United Fire

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

The idea behind BRP Inc and United Fire Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.