Correlation Between Union Pacific and United Parcel

Can any of the company-specific risk be diversified away by investing in both Union Pacific and United Parcel 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 Union Pacific and United Parcel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Union Pacific and United Parcel Service, you can compare the effects of market volatilities on Union Pacific and United Parcel 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 Union Pacific with a short position of United Parcel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Pacific and United Parcel.

Diversification Opportunities for Union Pacific and United Parcel

-0.22

Correlation Coefficient

Union Pacific  United Parcel

Very good diversification

The 3 months correlation between Union and United is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and United Parcel Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Parcel Service and Union Pacific 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 Union Pacific are associated (or correlated) with United Parcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Parcel Service has no effect on the direction of Union Pacific i.e., Union Pacific and United Parcel go up and down completely randomly.

Pair Corralation between Union Pacific and United Parcel

Considering the 90-day investment horizon Union Pacific is expected to under-perform the United Parcel. But the stock apears to be less risky and, when comparing its historical volatility, Union Pacific is 1.01 times less risky than United Parcel. The stock trades about -0.04 of its potential returns per unit of risk. The United Parcel Service is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  12,686  in United Parcel Service on September 12, 2024 and sell it today you would earn a total of  336.00  from holding United Parcel Service or generate 2.65% return on investment over 90 days.

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

Union Pacific  vs.  United Parcel Service

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

United Parcel Service

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Parcel Service are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, United Parcel is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Union Pacific and United Parcel

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

The idea behind Union Pacific and United Parcel Service 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.