Correlation Between American Green and Universal
Can any of the company-specific risk be diversified away by investing in both American Green and Universal 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 American Green and Universal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Green and Universal, you can compare the effects of market volatilities on American Green and Universal 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 American Green with a short position of Universal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Green and Universal.
Diversification Opportunities for American Green and Universal
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Universal is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding American Green and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and American Green 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 American Green are associated (or correlated) with Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of American Green i.e., American Green and Universal go up and down completely randomly.
Pair Corralation between American Green and Universal
Given the investment horizon of 90 days American Green is expected to generate 12.78 times more return on investment than Universal. However, American Green is 12.78 times more volatile than Universal. It trades about 0.09 of its potential returns per unit of risk. Universal is currently generating about 0.06 per unit of risk. If you would invest 0.05 in American Green on October 13, 2024 and sell it today you would earn a total of 0.00 from holding American Green or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.31% |
| Values | Daily Returns |
American Green vs. Universal
Performance |
| Timeline |
| American Green |
| Universal |
American Green and Universal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Green and Universal
The main advantage of trading using opposite American Green and Universal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Green position performs unexpectedly, Universal 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 will offset losses from the drop in Universal's long position.| American Green vs. Greengro Tech | American Green vs. Growlife | American Green vs. Hemp Inc | American Green vs. Easton Pharmaceutica |
| Universal vs. Imperial Brands PLC | Universal vs. Japan Tobacco ADR | Universal vs. Philip Morris International | Universal vs. Turning Point Brands |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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