Correlation Between Upstart Holdings and Lemonade

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

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

Diversification Opportunities for Upstart Holdings and Lemonade

0.87

Correlation Coefficient

Upstart Holdings  Lemonade

Very poor diversification

The 3 months correlation between Upstart and Lemonade is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Upstart Holdings and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade and Upstart Holdings 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 Upstart Holdings are associated (or correlated) with Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of Upstart Holdings i.e., Upstart Holdings and Lemonade go up and down completely randomly.

Pair Corralation between Upstart Holdings and Lemonade

Given the investment horizon of 90 days Upstart Holdings is expected to generate 1.34 times less return on investment than Lemonade. In addition to that, Upstart Holdings is 1.17 times more volatile than Lemonade. It trades about 0.19 of its total potential returns per unit of risk. Lemonade is currently generating about 0.3 per unit of volatility. If you would invest  1,833  in Lemonade on September 2, 2024 and sell it today you would earn a total of  3,348  from holding Lemonade or generate 182.65% return on investment over 90 days.

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

Upstart Holdings  vs.  Lemonade

Upstart Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Upstart Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Upstart Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lemonade

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lemonade are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lemonade exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Upstart Holdings and Lemonade

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

The idea behind Upstart Holdings and Lemonade 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.