Correlation Between Universal Security and ADT

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

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

Diversification Opportunities for Universal Security and ADT

0.24

Correlation Coefficient

Universal Security  ADT

Modest diversification

The 3 months correlation between Universal and ADT is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Universal Security Instruments and ADT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADT Inc and Universal Security 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 Security Instruments are associated (or correlated) with ADT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADT Inc has no effect on the direction of Universal Security i.e., Universal Security and ADT go up and down completely randomly.

Pair Corralation between Universal Security and ADT

Considering the 90-day investment horizon Universal Security Instruments is expected to generate 1.85 times more return on investment than ADT. However, Universal Security is 1.85 times more volatile than ADT Inc. It trades about 0.13 of its potential returns per unit of risk. ADT Inc is currently generating about -0.06 per unit of risk. If you would invest  208.00  in Universal Security Instruments on October 6, 2024 and sell it today you would earn a total of  24.00  from holding Universal Security Instruments or generate 11.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Universal Security Instruments  vs.  ADT Inc

Universal Security

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Security Instruments are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Universal Security unveiled solid returns over the last few months and may actually be approaching a breakup point.

ADT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, ADT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Universal Security and ADT

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

The idea behind Universal Security Instruments and ADT Inc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.