Correlation Between Wendys and Universal
Can any of the company-specific risk be diversified away by investing in both Wendys 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 Wendys and Universal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and Universal, you can compare the effects of market volatilities on Wendys 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 Wendys with a short position of Universal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and Universal.
Diversification Opportunities for Wendys and Universal
Good diversification
The 3 months correlation between Wendys and Universal is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal and Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and Universal go up and down completely randomly.
Pair Corralation between Wendys and Universal
Considering the 90-day investment horizon Wendys is expected to generate 1.33 times less return on investment than Universal. But when comparing it to its historical volatility, The Wendys Co is 1.06 times less risky than Universal. It trades about 0.01 of its potential returns per unit of risk. Universal is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 5,664 in Universal on September 2, 2024 and sell it today you would earn a total of 48.00 from holding Universal or generate 0.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Wendys Co vs. Universal
Performance |
| Timeline |
| The Wendys |
| Universal |
Wendys and Universal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wendys and Universal
The main advantage of trading using opposite Wendys and Universal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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.| Wendys vs. Yum Brands | Wendys vs. Dominos Pizza | Wendys vs. Darden Restaurants | Wendys vs. Papa Johns International |
| 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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