Correlation Between Universal and General Mills

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

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

Diversification Opportunities for Universal and General Mills

0.29

Correlation Coefficient

Universal  General Mills

Modest diversification

The 3 months correlation between Universal and General is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Universal and General Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Mills and Universal 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 are associated (or correlated) with General Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Mills has no effect on the direction of Universal i.e., Universal and General Mills go up and down completely randomly.

Pair Corralation between Universal and General Mills

Considering the 90-day investment horizon Universal is expected to generate 0.83 times more return on investment than General Mills. However, Universal is 1.2 times less risky than General Mills. It trades about 0.07 of its potential returns per unit of risk. General Mills is currently generating about -0.04 per unit of risk. If you would invest  5,348  in Universal on December 29, 2024 and sell it today you would earn a total of  295.00  from holding Universal or generate 5.52% return on investment over 90 days.

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

Universal  vs.  General Mills

Universal

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Universal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

General Mills

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Mills has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, General Mills 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 and General Mills

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

The idea behind Universal and General Mills 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.