Correlation Between United Fire and NISOURCE

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

Diversification Opportunities for United Fire and NISOURCE

0.14

Correlation Coefficient

United Fire  NISOURCE

Average diversification

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

Pair Corralation between United Fire and NISOURCE

Given the investment horizon of 90 days United Fire Group is expected to generate 1.92 times more return on investment than NISOURCE. However, United Fire is 1.92 times more volatile than NISOURCE FIN P. It trades about 0.0 of its potential returns per unit of risk. NISOURCE FIN P is currently generating about -0.05 per unit of risk. If you would invest  2,894  in United Fire Group on December 24, 2024 and sell it today you would lose (18.00) from holding United Fire Group or give up 0.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	51.67%
Values	Daily Returns

United Fire Group  vs.  NISOURCE FIN P

United Fire Group

Risk-Adjusted Performance

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.

NISOURCE FIN P

Risk-Adjusted Performance

Very Weak

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

Pair Trading with United Fire and NISOURCE

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

The idea behind United Fire Group and NISOURCE FIN P 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.