Correlation Between Universal Corp and Highlight Communications

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

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

Diversification Opportunities for Universal Corp and Highlight Communications

0.42

Correlation Coefficient

Universal Corp  Highlight Communications

Very weak diversification

The 3 months correlation between Universal and Highlight is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Universal Corp and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications and Universal Corp 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 Corp are associated (or correlated) with Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of Universal Corp i.e., Universal Corp and Highlight Communications go up and down completely randomly.

Pair Corralation between Universal Corp and Highlight Communications

Assuming the 90 days trading horizon Universal Corp is expected to generate 0.39 times more return on investment than Highlight Communications. However, Universal Corp is 2.6 times less risky than Highlight Communications. It trades about 0.21 of its potential returns per unit of risk. Highlight Communications AG is currently generating about 0.03 per unit of risk. If you would invest  4,609  in Universal Corp on September 18, 2024 and sell it today you would earn a total of  836.00  from holding Universal Corp or generate 18.14% return on investment over 90 days.

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

Universal Corp  vs.  Highlight Communications AG

Universal Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Universal Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Highlight Communications

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Highlight Communications is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Universal Corp and Highlight Communications

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

The idea behind Universal Corp and Highlight Communications AG 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.