Correlation Between Coffee Holding and Universal Insurance

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

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

Diversification Opportunities for Coffee Holding and Universal Insurance

0.57

Correlation Coefficient

Coffee Holding  Universal Insurance

Very weak diversification

The 3 months correlation between Coffee and Universal is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and Universal Insurance Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Insurance and Coffee Holding 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 Coffee Holding Co 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 Coffee Holding i.e., Coffee Holding and Universal Insurance go up and down completely randomly.

Pair Corralation between Coffee Holding and Universal Insurance

Assuming the 90 days horizon Coffee Holding Co is expected to generate 1.66 times more return on investment than Universal Insurance. However, Coffee Holding is 1.66 times more volatile than Universal Insurance Holdings. It trades about 0.14 of its potential returns per unit of risk. Universal Insurance Holdings is currently generating about 0.01 per unit of risk. If you would invest  292.00  in Coffee Holding Co on September 19, 2024 and sell it today you would earn a total of  126.00  from holding Coffee Holding Co or generate 43.15% return on investment over 90 days.

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

Coffee Holding Co  vs.  Universal Insurance Holdings

Coffee Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.

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 Coffee Holding and Universal Insurance

The main advantage of trading using opposite Coffee Holding and Universal Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee Holding 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 Coffee Holding Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.