Correlation Between Desktop Metal and Universal Security

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

By analyzing existing cross correlation between Desktop Metal and Universal Security Instruments, you can compare the effects of market volatilities on Desktop Metal and Universal Security 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 Desktop Metal with a short position of Universal Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Desktop Metal and Universal Security.

Diversification Opportunities for Desktop Metal and Universal Security

-0.69

Correlation Coefficient

Desktop Metal  Universal Security

Excellent diversification

The 3 months correlation between Desktop and Universal is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Universal Security Instruments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Security and Desktop Metal 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 Desktop Metal are associated (or correlated) with Universal Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Security has no effect on the direction of Desktop Metal i.e., Desktop Metal and Universal Security go up and down completely randomly.

Pair Corralation between Desktop Metal and Universal Security

Allowing for the 90-day total investment horizon Desktop Metal is expected to under-perform the Universal Security. But the stock apears to be less risky and, when comparing its historical volatility, Desktop Metal is 2.34 times less risky than Universal Security. The stock trades about -0.1 of its potential returns per unit of risk. The Universal Security Instruments is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  123.00  in Universal Security Instruments on September 13, 2024 and sell it today you would earn a total of  98.00  from holding Universal Security Instruments or generate 79.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Desktop Metal  vs.  Universal Security Instruments

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Desktop Metal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Universal Security

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Security Instruments are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Universal Security unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Desktop Metal and Universal Security

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

The idea behind Desktop Metal and Universal Security Instruments 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.