Correlation Between United Fire and Playa Hotels

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

Diversification Opportunities for United Fire and Playa Hotels

0.89

Correlation Coefficient

United Fire  Playa Hotels

Very poor diversification

The 3 months correlation between United and Playa is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and Playa Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playa Hotels Resorts 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 Playa Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playa Hotels Resorts has no effect on the direction of United Fire i.e., United Fire and Playa Hotels go up and down completely randomly.

Pair Corralation between United Fire and Playa Hotels

Given the investment horizon of 90 days United Fire Group is expected to under-perform the Playa Hotels. But the stock apears to be less risky and, when comparing its historical volatility, United Fire Group is 1.06 times less risky than Playa Hotels. The stock trades about -0.14 of its potential returns per unit of risk. The Playa Hotels Resorts is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  990.00  in Playa Hotels Resorts on September 24, 2024 and sell it today you would lose (29.00) from holding Playa Hotels Resorts or give up 2.93% of portfolio value over 90 days.

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

United Fire Group  vs.  Playa Hotels Resorts

United Fire Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Playa Hotels Resorts

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Fire and Playa Hotels

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

The idea behind United Fire Group and Playa Hotels Resorts 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.