Correlation Between Universal Power and American Diversified

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

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

Diversification Opportunities for Universal Power and American Diversified

0.64

Correlation Coefficient

Universal Power  American Diversified

Poor diversification

The 3 months correlation between Universal and American is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Universal Power Industry and American Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Diversified and Universal Power 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 Universal Power Industry are associated (or correlated) with American Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Diversified has no effect on the direction of Universal Power i.e., Universal Power and American Diversified go up and down completely randomly.

Pair Corralation between Universal Power and American Diversified

Given the investment horizon of 90 days Universal Power Industry is expected to under-perform the American Diversified. But the pink sheet apears to be less risky and, when comparing its historical volatility, Universal Power Industry is 1.86 times less risky than American Diversified. The pink sheet trades about -0.12 of its potential returns per unit of risk. The American Diversified Holdings is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  0.16  in American Diversified Holdings on December 30, 2024 and sell it today you would lose (0.08) from holding American Diversified Holdings or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.38%
Values	Daily Returns

Universal Power Industry  vs.  American Diversified Holdings

Universal Power Industry

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Power Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

American Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Diversified Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical 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 the firm shareholders.

Pair Trading with Universal Power and American Diversified

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

The idea behind Universal Power Industry and American Diversified Holdings 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.