Correlation Between SBA Communications and Universal Entertainment
Can any of the company-specific risk be diversified away by investing in both SBA Communications and Universal Entertainment 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 SBA Communications and Universal Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SBA Communications Corp and Universal Entertainment, you can compare the effects of market volatilities on SBA Communications and Universal Entertainment 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 SBA Communications with a short position of Universal Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBA Communications and Universal Entertainment.
Diversification Opportunities for SBA Communications and Universal Entertainment
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between SBA and Universal is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding SBA Communications Corp and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment and SBA Communications 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 SBA Communications Corp are associated (or correlated) with Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of SBA Communications i.e., SBA Communications and Universal Entertainment go up and down completely randomly.
Pair Corralation between SBA Communications and Universal Entertainment
Assuming the 90 days trading horizon SBA Communications Corp is expected to generate 0.34 times more return on investment than Universal Entertainment. However, SBA Communications Corp is 2.91 times less risky than Universal Entertainment. It trades about 0.08 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.12 per unit of risk. If you would invest 20,980 in SBA Communications Corp on September 1, 2024 and sell it today you would earn a total of 600.00 from holding SBA Communications Corp or generate 2.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SBA Communications Corp vs. Universal Entertainment
Performance |
| Timeline |
| SBA Communications Corp |
| Universal Entertainment |
SBA Communications and Universal Entertainment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SBA Communications and Universal Entertainment
The main advantage of trading using opposite SBA Communications and Universal Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBA Communications position performs unexpectedly, Universal Entertainment 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 Universal Entertainment will offset losses from the drop in Universal Entertainment's long position.The idea behind SBA Communications Corp and Universal Entertainment 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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