Correlation Between Sunedison and United Fire

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

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

Diversification Opportunities for Sunedison and United Fire

-0.69

Correlation Coefficient

Sunedison  United Fire

Excellent diversification

The 3 months correlation between Sunedison and United is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sunedison and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group and Sunedison 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 Sunedison are associated (or correlated) with United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of Sunedison i.e., Sunedison and United Fire go up and down completely randomly.

Pair Corralation between Sunedison and United Fire

Given the investment horizon of 90 days Sunedison is expected to under-perform the United Fire. In addition to that, Sunedison is 2.64 times more volatile than United Fire Group. It trades about -0.11 of its total potential returns per unit of risk. United Fire Group is currently generating about 0.19 per unit of volatility. If you would invest  2,061  in United Fire Group on September 15, 2024 and sell it today you would earn a total of  1,024  from holding United Fire Group or generate 49.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Sunedison  vs.  United Fire Group

Sunedison

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunedison 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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

United Fire Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sunedison and United Fire

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

The idea behind Sunedison and United Fire Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.