Correlation Between Union Pacific and Arkema SA

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

By analyzing existing cross correlation between Union Pacific and Arkema SA, you can compare the effects of market volatilities on Union Pacific and Arkema SA 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 Arkema SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Pacific and Arkema SA.

Diversification Opportunities for Union Pacific and Arkema SA

0.2

Correlation Coefficient

Union Pacific  Arkema SA

Modest diversification

The 3 months correlation between Union and Arkema is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and Arkema SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arkema SA 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 Arkema SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arkema SA has no effect on the direction of Union Pacific i.e., Union Pacific and Arkema SA go up and down completely randomly.

Pair Corralation between Union Pacific and Arkema SA

Considering the 90-day investment horizon Union Pacific is expected to under-perform the Arkema SA. But the stock apears to be less risky and, when comparing its historical volatility, Union Pacific is 1.05 times less risky than Arkema SA. The stock trades about -0.25 of its potential returns per unit of risk. The Arkema SA is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  10,570  in Arkema SA on January 25, 2024 and sell it today you would lose (336.00) from holding Arkema SA or give up 3.18% of portfolio value over 90 days.

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

Union Pacific  vs.  Arkema SA

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 current stock price agitation, may contribute to short-term losses for the retail investors.

Arkema SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arkema SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arkema SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Union Pacific and Arkema SA

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

The idea behind Union Pacific and Arkema SA 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.