Correlation Between Union Bank and Convenience Foods

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

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

Diversification Opportunities for Union Bank and Convenience Foods

-0.14

Correlation Coefficient

Union Bank  Convenience Foods

Good diversification

The 3 months correlation between Union and Convenience is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Union Bank and Convenience Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Convenience Foods PLC and Union Bank 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 Union Bank are associated (or correlated) with Convenience Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Convenience Foods PLC has no effect on the direction of Union Bank i.e., Union Bank and Convenience Foods go up and down completely randomly.

Pair Corralation between Union Bank and Convenience Foods

Assuming the 90 days trading horizon Union Bank is expected to generate 6.37 times more return on investment than Convenience Foods. However, Union Bank is 6.37 times more volatile than Convenience Foods PLC. It trades about 0.01 of its potential returns per unit of risk. Convenience Foods PLC is currently generating about -0.02 per unit of risk. If you would invest  1,060  in Union Bank on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Union Bank or generate 0.0% return on investment over 90 days.

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

Union Bank  vs.  Convenience Foods PLC

Union Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Union Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Convenience Foods PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Convenience Foods PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Convenience Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Union Bank and Convenience Foods

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

The idea behind Union Bank and Convenience Foods PLC 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.