Correlation Between Universal Insurance and Japan Asia

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

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

Diversification Opportunities for Universal Insurance and Japan Asia

0.51

Correlation Coefficient

Universal Insurance  Japan Asia

Very weak diversification

The 3 months correlation between Universal and Japan is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Universal Insurance Holdings and Japan Asia Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Asia Investment and Universal Insurance 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 Universal Insurance Holdings are associated (or correlated) with Japan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Asia Investment has no effect on the direction of Universal Insurance i.e., Universal Insurance and Japan Asia go up and down completely randomly.

Pair Corralation between Universal Insurance and Japan Asia

Assuming the 90 days horizon Universal Insurance Holdings is expected to under-perform the Japan Asia. But the stock apears to be less risky and, when comparing its historical volatility, Universal Insurance Holdings is 1.47 times less risky than Japan Asia. The stock trades about -0.32 of its potential returns per unit of risk. The Japan Asia Investment is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  133.00  in Japan Asia Investment on October 1, 2024 and sell it today you would lose (5.00) from holding Japan Asia Investment or give up 3.76% of portfolio value over 90 days.

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

Universal Insurance Holdings  vs.  Japan Asia Investment

Universal Insurance

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Insurance Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Universal Insurance is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Asia Investment

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Universal Insurance and Japan Asia

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

The idea behind Universal Insurance Holdings and Japan Asia Investment 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.

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