Correlation Between Valhi and United Fire

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

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

Diversification Opportunities for Valhi and United Fire

-0.87

Correlation Coefficient

Valhi  United Fire

Pay attention - limited upside

The 3 months correlation between Valhi and United is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and United Fire Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Fire Group and Valhi 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 Valhi Inc are associated (or correlated) with United Fire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Fire Group has no effect on the direction of Valhi i.e., Valhi and United Fire go up and down completely randomly.

Pair Corralation between Valhi and United Fire

Considering the 90-day investment horizon Valhi Inc is expected to under-perform the United Fire. In addition to that, Valhi is 1.28 times more volatile than United Fire Group. It trades about -0.12 of its total potential returns per unit of risk. United Fire Group is currently generating about 0.16 per unit of volatility. If you would invest  2,062  in United Fire Group on September 26, 2024 and sell it today you would earn a total of  805.00  from holding United Fire Group or generate 39.04% return on investment over 90 days.

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

Valhi Inc  vs.  United Fire Group

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

United Fire Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Fire Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, United Fire unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valhi and United Fire

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

The idea behind Valhi Inc and United Fire Group 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.