Correlation Between AES and Universal Entertainment

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

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

Diversification Opportunities for AES and Universal Entertainment

-0.17

Correlation Coefficient

AES  Universal Entertainment

Good diversification

The 3 months correlation between AES and Universal is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment and AES 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 The AES are associated (or correlated) with Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of AES i.e., AES and Universal Entertainment go up and down completely randomly.

Pair Corralation between AES and Universal Entertainment

Assuming the 90 days horizon The AES is expected to generate 0.94 times more return on investment than Universal Entertainment. However, The AES is 1.07 times less risky than Universal Entertainment. It trades about 0.12 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.21 per unit of risk. If you would invest  1,642  in The AES on February 7, 2024 and sell it today you would earn a total of  86.00  from holding The AES or generate 5.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

The AES  vs.  Universal Entertainment

AES

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The AES are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AES reported solid returns over the last few months and may actually be approaching a breakup point.

Universal Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with AES and Universal Entertainment

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

The idea behind The AES and Universal Entertainment 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.