Correlation Between NAPCO Security and UFP Technologies

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

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

Diversification Opportunities for NAPCO Security and UFP Technologies

0.45

Correlation Coefficient

NAPCO Security  UFP Technologies

Very weak diversification

The 3 months correlation between NAPCO and UFP is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding NAPCO Security Technologies and UFP Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UFP Technologies and NAPCO Security 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 NAPCO Security Technologies are associated (or correlated) with UFP Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UFP Technologies has no effect on the direction of NAPCO Security i.e., NAPCO Security and UFP Technologies go up and down completely randomly.

Pair Corralation between NAPCO Security and UFP Technologies

Given the investment horizon of 90 days NAPCO Security Technologies is expected to under-perform the UFP Technologies. In addition to that, NAPCO Security is 1.14 times more volatile than UFP Technologies. It trades about -0.18 of its total potential returns per unit of risk. UFP Technologies is currently generating about -0.13 per unit of volatility. If you would invest  30,744  in UFP Technologies on December 2, 2024 and sell it today you would lose (7,985) from holding UFP Technologies or give up 25.97% of portfolio value over 90 days.

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

NAPCO Security Technologies  vs.  UFP Technologies

NAPCO Security Techn

Risk-Adjusted Performance

Very Weak

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

UFP Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days UFP Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NAPCO Security and UFP Technologies

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

The idea behind NAPCO Security Technologies and UFP Technologies 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.