Correlation Between Union Materials and Moonbae Steel

Can any of the company-specific risk be diversified away by investing in both Union Materials and Moonbae Steel 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 Union Materials and Moonbae Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Union Materials Corp and Moonbae Steel, you can compare the effects of market volatilities on Union Materials and Moonbae Steel 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 Union Materials with a short position of Moonbae Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Materials and Moonbae Steel.

Diversification Opportunities for Union Materials and Moonbae Steel

0.26

Correlation Coefficient

Union Materials  Moonbae Steel

Modest diversification

The 3 months correlation between Union and Moonbae is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Union Materials Corp and Moonbae Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moonbae Steel and Union Materials 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 Union Materials Corp are associated (or correlated) with Moonbae Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moonbae Steel has no effect on the direction of Union Materials i.e., Union Materials and Moonbae Steel go up and down completely randomly.

Pair Corralation between Union Materials and Moonbae Steel

Assuming the 90 days trading horizon Union Materials Corp is expected to generate 1.17 times more return on investment than Moonbae Steel. However, Union Materials is 1.17 times more volatile than Moonbae Steel. It trades about 0.04 of its potential returns per unit of risk. Moonbae Steel is currently generating about -0.03 per unit of risk. If you would invest  206,500  in Union Materials Corp on October 1, 2024 and sell it today you would earn a total of  9,000  from holding Union Materials Corp or generate 4.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Union Materials Corp  vs.  Moonbae Steel

Union Materials Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Union Materials Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Materials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Moonbae Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moonbae Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Moonbae Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Union Materials and Moonbae Steel

The main advantage of trading using opposite Union Materials and Moonbae Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Materials position performs unexpectedly, Moonbae Steel 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 Moonbae Steel will offset losses from the drop in Moonbae Steel's long position.

The idea behind Union Materials Corp and Moonbae Steel 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.