Correlation Between Universal and Tandy Leather

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

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

Diversification Opportunities for Universal and Tandy Leather

0.14

Correlation Coefficient

Universal  Tandy Leather

Average diversification

The 3 months correlation between Universal and Tandy is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Universal and Tandy Leather Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandy Leather Factory 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 Tandy Leather. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandy Leather Factory has no effect on the direction of Universal i.e., Universal and Tandy Leather go up and down completely randomly.

Pair Corralation between Universal and Tandy Leather

Considering the 90-day investment horizon Universal is expected to generate 0.72 times more return on investment than Tandy Leather. However, Universal is 1.39 times less risky than Tandy Leather. It trades about 0.01 of its potential returns per unit of risk. Tandy Leather Factory is currently generating about 0.01 per unit of risk. If you would invest  4,865  in Universal on October 24, 2024 and sell it today you would earn a total of  193.00  from holding Universal or generate 3.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Universal  vs.  Tandy Leather Factory

Universal

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 3 (%) 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.

Tandy Leather Factory

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Tandy Leather is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Universal and Tandy Leather

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

The idea behind Universal and Tandy Leather Factory 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.