Correlation Between UBS ETRACS and NATO

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

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

Diversification Opportunities for UBS ETRACS and NATO

-0.4

Correlation Coefficient

UBS ETRACS  NATO

Very good diversification

The 3 months correlation between UBS and NATO is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding UBS ETRACS and NATO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATO and UBS ETRACS 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 UBS ETRACS are associated (or correlated) with NATO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATO has no effect on the direction of UBS ETRACS i.e., UBS ETRACS and NATO go up and down completely randomly.

Pair Corralation between UBS ETRACS and NATO

Given the investment horizon of 90 days UBS ETRACS is expected to generate 3.25 times more return on investment than NATO. However, UBS ETRACS is 3.25 times more volatile than NATO. It trades about 0.12 of its potential returns per unit of risk. NATO is currently generating about 0.02 per unit of risk. If you would invest  1,804  in UBS ETRACS on September 23, 2024 and sell it today you would earn a total of  532.00  from holding UBS ETRACS or generate 29.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	78.46%
Values	Daily Returns

UBS ETRACS   vs.  NATO

UBS ETRACS

Risk-Adjusted Performance

9 of 100

OK

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

NATO

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NATO are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, NATO is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with UBS ETRACS and NATO

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

The idea behind UBS ETRACS and NATO 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.