Correlation Between Universal and SkyWest

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

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

Diversification Opportunities for Universal and SkyWest

0.75

Correlation Coefficient

Universal  SkyWest

Poor diversification

The 3 months correlation between Universal and SkyWest is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Universal and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest 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 SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of Universal i.e., Universal and SkyWest go up and down completely randomly.

Pair Corralation between Universal and SkyWest

Considering the 90-day investment horizon Universal is expected to generate 2.44 times less return on investment than SkyWest. But when comparing it to its historical volatility, Universal is 1.63 times less risky than SkyWest. It trades about 0.1 of its potential returns per unit of risk. SkyWest is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  8,351  in SkyWest on October 3, 2024 and sell it today you would earn a total of  1,662  from holding SkyWest or generate 19.9% return on investment over 90 days.

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

Universal  vs.  SkyWest

Universal

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Universal may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SkyWest

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal and SkyWest

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

The idea behind Universal and SkyWest 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.