Correlation Between United Fire and Axalta Coating

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

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

Diversification Opportunities for United Fire and Axalta Coating

-0.13

Correlation Coefficient

United Fire  Axalta Coating

Good diversification

The 3 months correlation between United and Axalta is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and Axalta Coating Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axalta Coating Systems and United Fire 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 United Fire Group are associated (or correlated) with Axalta Coating. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axalta Coating Systems has no effect on the direction of United Fire i.e., United Fire and Axalta Coating go up and down completely randomly.

Pair Corralation between United Fire and Axalta Coating

Given the investment horizon of 90 days United Fire is expected to generate 1.16 times less return on investment than Axalta Coating. In addition to that, United Fire is 1.06 times more volatile than Axalta Coating Systems. It trades about 0.01 of its total potential returns per unit of risk. Axalta Coating Systems is currently generating about 0.01 per unit of volatility. If you would invest  3,440  in Axalta Coating Systems on December 20, 2024 and sell it today you would earn a total of  6.00  from holding Axalta Coating Systems or generate 0.17% return on investment over 90 days.

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

United Fire Group  vs.  Axalta Coating Systems

United Fire Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Fire Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, United Fire is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Axalta Coating Systems

Risk-Adjusted Performance

Very Weak

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

Pair Trading with United Fire and Axalta Coating

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

The idea behind United Fire Group and Axalta Coating Systems 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 Global Correlations module to find global opportunities by holding instruments from different markets.