Correlation Between Oil and Unity Foods

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

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

Diversification Opportunities for Oil and Unity Foods

0.53

Correlation Coefficient

Oil  Unity Foods

Very weak diversification

The 3 months correlation between Oil and Unity is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and Unity Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unity Foods and Oil 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 Oil and Gas are associated (or correlated) with Unity Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unity Foods has no effect on the direction of Oil i.e., Oil and Unity Foods go up and down completely randomly.

Pair Corralation between Oil and Unity Foods

Assuming the 90 days trading horizon Oil and Gas is expected to generate 0.97 times more return on investment than Unity Foods. However, Oil and Gas is 1.03 times less risky than Unity Foods. It trades about 0.33 of its potential returns per unit of risk. Unity Foods is currently generating about 0.17 per unit of risk. If you would invest  13,666  in Oil and Gas on September 17, 2024 and sell it today you would earn a total of  8,629  from holding Oil and Gas or generate 63.14% return on investment over 90 days.

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

Oil and Gas  vs.  Unity Foods

Oil and Gas

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Unity Foods

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Unity Foods are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Unity Foods disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil and Unity Foods

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

The idea behind Oil and Gas and Unity Foods 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.