Correlation Between UMA and Compound

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

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

Diversification Opportunities for UMA and Compound

0.98

Correlation Coefficient

UMA  Compound

Almost no diversification

The 3 months correlation between UMA and Compound is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding UMA and Compound in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compound and UMA 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 UMA are associated (or correlated) with Compound. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compound has no effect on the direction of UMA i.e., UMA and Compound go up and down completely randomly.

Pair Corralation between UMA and Compound

Assuming the 90 days trading horizon UMA is expected to under-perform the Compound. In addition to that, UMA is 1.13 times more volatile than Compound. It trades about -0.16 of its total potential returns per unit of risk. Compound is currently generating about -0.14 per unit of volatility. If you would invest  7,320  in Compound on December 30, 2024 and sell it today you would lose (3,462) from holding Compound or give up 47.3% of portfolio value over 90 days.

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

UMA  vs.  Compound

UMA

Risk-Adjusted Performance

Very Weak

Over the last 90 days UMA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for UMA shareholders.

Compound

Risk-Adjusted Performance

Very Weak

Over the last 90 days Compound has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for Compound shareholders.

Pair Trading with UMA and Compound

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

The idea behind UMA and Compound 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.