Correlation Between UPP and BNT

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

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

Diversification Opportunities for UPP and BNT

0.79

Correlation Coefficient

UPP  BNT

Poor diversification

The 3 months correlation between UPP and BNT is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding UPP and BNT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNT and UPP 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 UPP are associated (or correlated) with BNT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNT has no effect on the direction of UPP i.e., UPP and BNT go up and down completely randomly.

Pair Corralation between UPP and BNT

Assuming the 90 days trading horizon UPP is expected to generate 1.7 times more return on investment than BNT. However, UPP is 1.7 times more volatile than BNT. It trades about -0.1 of its potential returns per unit of risk. BNT is currently generating about -0.22 per unit of risk. If you would invest  11.00  in UPP on January 23, 2024 and sell it today you would lose (1.90) from holding UPP or give up 17.27% of portfolio value over 90 days.

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

UPP  vs.  BNT

UPP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in UPP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, UPP exhibited solid returns over the last few months and may actually be approaching a breakup point.

BNT

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BNT are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BNT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UPP and BNT

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

The idea behind UPP and BNT 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.