Correlation Between Union Materials and Histeel

Can any of the company-specific risk be diversified away by investing in both Union Materials and Histeel 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 Histeel 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 Histeel, you can compare the effects of market volatilities on Union Materials and Histeel 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 Histeel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Materials and Histeel.

Diversification Opportunities for Union Materials and Histeel

-0.03

Correlation Coefficient

Union Materials  Histeel

Good diversification

The 3 months correlation between Union and Histeel is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Union Materials Corp and Histeel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Histeel 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 Histeel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Histeel has no effect on the direction of Union Materials i.e., Union Materials and Histeel go up and down completely randomly.

Pair Corralation between Union Materials and Histeel

Assuming the 90 days trading horizon Union Materials Corp is expected to generate 0.92 times more return on investment than Histeel. However, Union Materials Corp is 1.09 times less risky than Histeel. It trades about 0.09 of its potential returns per unit of risk. Histeel is currently generating about 0.0 per unit of risk. If you would invest  206,500  in Union Materials Corp on September 5, 2024 and sell it today you would earn a total of  27,000  from holding Union Materials Corp or generate 13.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Union Materials Corp  vs.  Histeel

Union Materials Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Union Materials Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

Histeel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Histeel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Histeel 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 Histeel

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

The idea behind Union Materials Corp and Histeel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.