Correlation Between HomeChoice Investments and Universal Partners

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

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

Diversification Opportunities for HomeChoice Investments and Universal Partners

0.77

Correlation Coefficient

HomeChoice Investments  Universal Partners

Poor diversification

The 3 months correlation between HomeChoice and Universal is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding HomeChoice Investments and Universal Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Partners and HomeChoice Investments 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 HomeChoice Investments are associated (or correlated) with Universal Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Partners has no effect on the direction of HomeChoice Investments i.e., HomeChoice Investments and Universal Partners go up and down completely randomly.

Pair Corralation between HomeChoice Investments and Universal Partners

Assuming the 90 days trading horizon HomeChoice Investments is expected to under-perform the Universal Partners. In addition to that, HomeChoice Investments is 1.78 times more volatile than Universal Partners. It trades about -0.15 of its total potential returns per unit of risk. Universal Partners is currently generating about -0.06 per unit of volatility. If you would invest  200,000  in Universal Partners on September 26, 2024 and sell it today you would lose (10,000) from holding Universal Partners or give up 5.0% of portfolio value over 90 days.

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

HomeChoice Investments  vs.  Universal Partners

HomeChoice Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeChoice Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Universal Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Universal Partners is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with HomeChoice Investments and Universal Partners

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

The idea behind HomeChoice Investments and Universal Partners 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.