Correlation Between Histeel and Union Materials

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

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

Diversification Opportunities for Histeel and Union Materials

-0.02

Correlation Coefficient

Histeel  Union Materials

Good diversification

The 3 months correlation between Histeel and Union is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Histeel and Union Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Materials Corp and Histeel 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 Histeel are associated (or correlated) with Union Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Materials Corp has no effect on the direction of Histeel i.e., Histeel and Union Materials go up and down completely randomly.

Pair Corralation between Histeel and Union Materials

Assuming the 90 days trading horizon Histeel is expected to generate 1.36 times more return on investment than Union Materials. However, Histeel is 1.36 times more volatile than Union Materials Corp. It trades about 0.01 of its potential returns per unit of risk. Union Materials Corp is currently generating about -0.01 per unit of risk. If you would invest  325,491  in Histeel on September 4, 2024 and sell it today you would lose (21,491) from holding Histeel or give up 6.6% of portfolio value over 90 days.

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

Histeel  vs.  Union Materials Corp

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.

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.

Pair Trading with Histeel and Union Materials

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

The idea behind Histeel and Union Materials Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.