Correlation Between British American and Universal Insurance
Can any of the company-specific risk be diversified away by investing in both British American and Universal Insurance 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 British American and Universal Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Universal Insurance Holdings, you can compare the effects of market volatilities on British American and Universal Insurance 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 British American with a short position of Universal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Universal Insurance.
Diversification Opportunities for British American and Universal Insurance
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between British and Universal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance and British American 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 British American Tobacco are associated (or correlated) with Universal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Insurance has no effect on the direction of British American i.e., British American and Universal Insurance go up and down completely randomly.
Pair Corralation between British American and Universal Insurance
Assuming the 90 days trading horizon British American is expected to generate 2.31 times less return on investment than Universal Insurance. But when comparing it to its historical volatility, British American Tobacco is 2.31 times less risky than Universal Insurance. It trades about 0.06 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,349 in Universal Insurance Holdings on August 26, 2024 and sell it today you would earn a total of 751.00 from holding Universal Insurance Holdings or generate 55.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Universal Insurance Holdings
Performance |
| Timeline |
| British American Tobacco |
| Universal Insurance |
British American and Universal Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Universal Insurance
The main advantage of trading using opposite British American and Universal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Universal Insurance 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 Insurance will offset losses from the drop in Universal Insurance's long position.| British American vs. Philip Morris International | British American vs. British American Tobacco | British American vs. British American Tobacco | British American vs. Altria Group |
| Universal Insurance vs. Insurance Australia Group | Universal Insurance vs. Superior Plus Corp | Universal Insurance vs. NMI Holdings | Universal Insurance vs. Origin Agritech |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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