Correlation Between Universal and Vestis
Can any of the company-specific risk be diversified away by investing in both Universal and Vestis 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 Vestis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal and Vestis, you can compare the effects of market volatilities on Universal and Vestis 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 Vestis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal and Vestis.
Diversification Opportunities for Universal and Vestis
Significant diversification
The 3 months correlation between Universal and Vestis is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Universal and Vestis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestis 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 Vestis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestis has no effect on the direction of Universal i.e., Universal and Vestis go up and down completely randomly.
Pair Corralation between Universal and Vestis
Considering the 90-day investment horizon Universal is expected to generate 0.45 times more return on investment than Vestis. However, Universal is 2.23 times less risky than Vestis. It trades about 0.06 of its potential returns per unit of risk. Vestis is currently generating about 0.01 per unit of risk. If you would invest 4,241 in Universal on August 30, 2024 and sell it today you would earn a total of 1,423 from holding Universal or generate 33.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 94.87% |
| Values | Daily Returns |
Universal vs. Vestis
Performance |
| Timeline |
| Universal |
| Vestis |
Universal and Vestis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal and Vestis
The main advantage of trading using opposite Universal and Vestis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal position performs unexpectedly, Vestis 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 Vestis will offset losses from the drop in Vestis' long position.| 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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