Correlation Between Agro Capital and Universal Power

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

By analyzing existing cross correlation between Agro Capital Management and Universal Power Industry, you can compare the effects of market volatilities on Agro Capital and Universal Power 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 Agro Capital with a short position of Universal Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Capital and Universal Power.

Diversification Opportunities for Agro Capital and Universal Power

0.11

Correlation Coefficient

Agro Capital  Universal Power

Average diversification

The 3 months correlation between Agro and Universal is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Agro Capital Management and Universal Power Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Power Industry and Agro Capital 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 Agro Capital Management are associated (or correlated) with Universal Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Power Industry has no effect on the direction of Agro Capital i.e., Agro Capital and Universal Power go up and down completely randomly.

Pair Corralation between Agro Capital and Universal Power

Given the investment horizon of 90 days Agro Capital is expected to generate 1.55 times less return on investment than Universal Power. But when comparing it to its historical volatility, Agro Capital Management is 1.08 times less risky than Universal Power. It trades about 0.09 of its potential returns per unit of risk. Universal Power Industry is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.37  in Universal Power Industry on September 13, 2024 and sell it today you would earn a total of  0.63  from holding Universal Power Industry or generate 170.27% return on investment over 90 days.

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

Agro Capital Management  vs.  Universal Power Industry

Agro Capital Management

Risk-Adjusted Performance

6 of 100

Modest

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

Universal Power Industry

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Power Industry are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Universal Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Agro Capital and Universal Power

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

The idea behind Agro Capital Management and Universal Power Industry 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.