Correlation Between Universal Systems and Allied Energy

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

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

Diversification Opportunities for Universal Systems and Allied Energy

0.0

Correlation Coefficient

Universal Systems  Allied Energy

Pay attention - limited upside

The 3 months correlation between Universal and Allied is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Universal Systems and Allied Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Energy and Universal Systems 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 Systems are associated (or correlated) with Allied Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Energy has no effect on the direction of Universal Systems i.e., Universal Systems and Allied Energy go up and down completely randomly.

Pair Corralation between Universal Systems and Allied Energy

Given the investment horizon of 90 days Universal Systems is expected to generate 6.03 times less return on investment than Allied Energy. But when comparing it to its historical volatility, Universal Systems is 1.71 times less risky than Allied Energy. It trades about 0.03 of its potential returns per unit of risk. Allied Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.53  in Allied Energy on October 11, 2024 and sell it today you would earn a total of  0.57  from holding Allied Energy or generate 107.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Universal Systems  vs.  Allied Energy

Universal Systems

Risk-Adjusted Performance

0 of 100

Very Weak

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

Allied Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical and fundamental indicators, Allied Energy demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Systems and Allied Energy

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

The idea behind Universal Systems and Allied Energy 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.