Correlation Between United States and Vulcan Materials

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

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

Diversification Opportunities for United States and Vulcan Materials

-0.11

Correlation Coefficient

United States  Vulcan Materials

Good diversification

The 3 months correlation between United and Vulcan is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding United States Lime and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and United States 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 United States Lime are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of United States i.e., United States and Vulcan Materials go up and down completely randomly.

Pair Corralation between United States and Vulcan Materials

Given the investment horizon of 90 days United States Lime is expected to generate 1.67 times more return on investment than Vulcan Materials. However, United States is 1.67 times more volatile than Vulcan Materials. It trades about 0.28 of its potential returns per unit of risk. Vulcan Materials is currently generating about -0.01 per unit of risk. If you would invest  25,346  in United States Lime on February 28, 2024 and sell it today you would earn a total of  9,354  from holding United States Lime or generate 36.91% return on investment over 90 days.

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

United States Lime  vs.  Vulcan Materials

United States Lime

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United States Lime are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, United States displayed solid returns over the last few months and may actually be approaching a breakup point.

Vulcan Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with United States and Vulcan Materials

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

The idea behind United States Lime and Vulcan Materials 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 Anywhere module to track or share privately all of your investments from the convenience of any device.