Correlation Between Universal and BRC

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

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

Diversification Opportunities for Universal and BRC

-0.64

Correlation Coefficient

Universal  BRC

Excellent diversification

The 3 months correlation between Universal and BRC is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Universal and BRC Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRC Inc and Universal 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 are associated (or correlated) with BRC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRC Inc has no effect on the direction of Universal i.e., Universal and BRC go up and down completely randomly.

Pair Corralation between Universal and BRC

Considering the 90-day investment horizon Universal is expected to under-perform the BRC. But the stock apears to be less risky and, when comparing its historical volatility, Universal is 2.98 times less risky than BRC. The stock trades about 0.0 of its potential returns per unit of risk. The BRC Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  370.00  in BRC Inc on September 13, 2024 and sell it today you would lose (58.00) from holding BRC Inc or give up 15.68% of portfolio value over 90 days.

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

Universal  vs.  BRC Inc

Universal

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Universal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BRC Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRC Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, BRC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Universal and BRC

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

The idea behind Universal and BRC Inc 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.