Correlation Between Auto Trader and Universal Insurance

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

By analyzing existing cross correlation between Auto Trader Group and Universal Insurance Holdings, you can compare the effects of market volatilities on Auto Trader and Universal Insurance 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 Auto Trader with a short position of Universal Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Universal Insurance.

Diversification Opportunities for Auto Trader and Universal Insurance

-0.49

Correlation Coefficient

Auto Trader  Universal Insurance

Very good diversification

The 3 months correlation between Auto and Universal is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance and Auto Trader 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 Auto Trader Group are associated (or correlated) with Universal Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Insurance has no effect on the direction of Auto Trader i.e., Auto Trader and Universal Insurance go up and down completely randomly.

Pair Corralation between Auto Trader and Universal Insurance

Assuming the 90 days trading horizon Auto Trader is expected to generate 1.61 times less return on investment than Universal Insurance. But when comparing it to its historical volatility, Auto Trader Group is 1.84 times less risky than Universal Insurance. It trades about 0.08 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  905.00  in Universal Insurance Holdings on September 19, 2024 and sell it today you would earn a total of  1,095  from holding Universal Insurance Holdings or generate 120.99% return on investment over 90 days.

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

Auto Trader Group  vs.  Universal Insurance Holdings

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Auto Trader is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Universal Insurance

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Universal Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Auto Trader and Universal Insurance

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

The idea behind Auto Trader Group and Universal Insurance Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.