Correlation Between United Fire and Black Hills

Can any of the company-specific risk be diversified away by investing in both United Fire and Black Hills 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 Black Hills 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 Black Hills, you can compare the effects of market volatilities on United Fire and Black Hills 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 Black Hills. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and Black Hills.

Diversification Opportunities for United Fire and Black Hills

0.66

Correlation Coefficient

United Fire  Black Hills

Poor diversification

The 3 months correlation between United and Black is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills 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 Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of United Fire i.e., United Fire and Black Hills go up and down completely randomly.

Pair Corralation between United Fire and Black Hills

Given the investment horizon of 90 days United Fire Group is expected to generate 1.75 times more return on investment than Black Hills. However, United Fire is 1.75 times more volatile than Black Hills. It trades about 0.02 of its potential returns per unit of risk. Black Hills is currently generating about -0.01 per unit of risk. If you would invest  2,586  in United Fire Group on September 20, 2024 and sell it today you would earn a total of  363.00  from holding United Fire Group or generate 14.04% return on investment over 90 days.

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

United Fire Group  vs.  Black Hills

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.

Black Hills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with United Fire and Black Hills

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

The idea behind United Fire Group and Black Hills 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.