Correlation Between Matco Foods and United Insurance

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

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

Diversification Opportunities for Matco Foods and United Insurance

-0.03

Correlation Coefficient

Matco Foods  United Insurance

Good diversification

The 3 months correlation between Matco and United is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Matco Foods and United Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance and Matco Foods 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 Matco Foods 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 Matco Foods i.e., Matco Foods and United Insurance go up and down completely randomly.

Pair Corralation between Matco Foods and United Insurance

Assuming the 90 days trading horizon Matco Foods is expected to under-perform the United Insurance. In addition to that, Matco Foods is 2.38 times more volatile than United Insurance. It trades about -0.01 of its total potential returns per unit of risk. United Insurance is currently generating about 0.08 per unit of volatility. If you would invest  1,583  in United Insurance on October 23, 2024 and sell it today you would earn a total of  42.00  from holding United Insurance or generate 2.65% return on investment over 90 days.

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

Matco Foods  vs.  United Insurance

Matco Foods

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Matco Foods reported solid returns over the last few months and may actually be approaching a breakup point.

United Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, United Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Matco Foods and United Insurance

The main advantage of trading using opposite Matco Foods and United Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Matco Foods 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 Matco Foods 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.