Correlation Between Unity Foods and Allied Bank

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

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

Diversification Opportunities for Unity Foods and Allied Bank

0.83

Correlation Coefficient

Unity Foods  Allied Bank

Very poor diversification

The 3 months correlation between Unity and Allied is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Unity Foods and Allied Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Bank and Unity Foods 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 Unity Foods are associated (or correlated) with Allied Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Bank has no effect on the direction of Unity Foods i.e., Unity Foods and Allied Bank go up and down completely randomly.

Pair Corralation between Unity Foods and Allied Bank

Assuming the 90 days trading horizon Unity Foods is expected to generate 1.12 times more return on investment than Allied Bank. However, Unity Foods is 1.12 times more volatile than Allied Bank. It trades about 0.16 of its potential returns per unit of risk. Allied Bank is currently generating about 0.18 per unit of risk. If you would invest  2,562  in Unity Foods on October 24, 2024 and sell it today you would earn a total of  732.00  from holding Unity Foods or generate 28.57% return on investment over 90 days.

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

Unity Foods  vs.  Allied Bank

Unity Foods

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Unity Foods are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Unity Foods disclosed solid returns over the last few months and may actually be approaching a breakup point.

Allied Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Allied Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unity Foods and Allied Bank

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

The idea behind Unity Foods and Allied Bank 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.