Correlation Between Nova and United Parcel
Can any of the company-specific risk be diversified away by investing in both Nova 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 Nova and United Parcel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nova and United Parcel Service, you can compare the effects of market volatilities on Nova 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 Nova with a short position of United Parcel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova and United Parcel.
Diversification Opportunities for Nova and United Parcel
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Nova and United is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Nova 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 Nova 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 Nova 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 Nova i.e., Nova and United Parcel go up and down completely randomly.
Pair Corralation between Nova and United Parcel
Assuming the 90 days trading horizon Nova is expected to generate 0.57 times more return on investment than United Parcel. However, Nova is 1.75 times less risky than United Parcel. It trades about -0.2 of its potential returns per unit of risk. United Parcel Service is currently generating about -0.13 per unit of risk. If you would invest 6,663,000 in Nova on January 25, 2024 and sell it today you would lose (296,000) from holding Nova or give up 4.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 77.27% |
| Values | Daily Returns |
Nova vs. United Parcel Service
Performance |
| Timeline |
| Nova |
| United Parcel Service |
Nova and United Parcel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nova and United Parcel
The main advantage of trading using opposite Nova and United Parcel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova 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 Nova 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.| United Parcel vs. GXO Logistics | United Parcel vs. JB Hunt Transport | United Parcel vs. Expeditors International of | United Parcel vs. CH Robinson Worldwide |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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