Correlation Between US Financial and Prime Dividend

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

By analyzing existing cross correlation between US Financial 15 and Prime Dividend Corp, you can compare the effects of market volatilities on US Financial and Prime Dividend 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 US Financial with a short position of Prime Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and Prime Dividend.

Diversification Opportunities for US Financial and Prime Dividend

-0.02

Correlation Coefficient

US Financial  Prime Dividend

Good diversification

The 3 months correlation between FTU and Prime is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 and Prime Dividend Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Dividend Corp and US Financial 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 US Financial 15 are associated (or correlated) with Prime Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Dividend Corp has no effect on the direction of US Financial i.e., US Financial and Prime Dividend go up and down completely randomly.

Pair Corralation between US Financial and Prime Dividend

Assuming the 90 days trading horizon US Financial 15 is expected to generate 3.01 times more return on investment than Prime Dividend. However, US Financial is 3.01 times more volatile than Prime Dividend Corp. It trades about -0.01 of its potential returns per unit of risk. Prime Dividend Corp is currently generating about -0.06 per unit of risk. If you would invest  46.00  in US Financial 15 on December 20, 2024 and sell it today you would lose (6.00) from holding US Financial 15 or give up 13.04% of portfolio value over 90 days.

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

US Financial 15  vs.  Prime Dividend Corp

US Financial 15

Risk-Adjusted Performance

Weak

Over the last 90 days US Financial 15 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, US Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Prime Dividend Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prime Dividend Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating 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.

Pair Trading with US Financial and Prime Dividend

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

The idea behind US Financial 15 and Prime Dividend Corp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.