Correlation Between BRP and Universal Electronics

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

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

Diversification Opportunities for BRP and Universal Electronics

-0.6

Correlation Coefficient

BRP  Universal Electronics

Excellent diversification

The 3 months correlation between BRP and Universal is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Universal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Electronics and BRP 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 BRP Inc are associated (or correlated) with Universal Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Electronics has no effect on the direction of BRP i.e., BRP and Universal Electronics go up and down completely randomly.

Pair Corralation between BRP and Universal Electronics

Given the investment horizon of 90 days BRP Inc is expected to generate 0.57 times more return on investment than Universal Electronics. However, BRP Inc is 1.75 times less risky than Universal Electronics. It trades about -0.02 of its potential returns per unit of risk. Universal Electronics is currently generating about -0.01 per unit of risk. If you would invest  7,338  in BRP Inc on September 21, 2024 and sell it today you would lose (2,161) from holding BRP Inc or give up 29.45% of portfolio value over 90 days.

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

BRP Inc  vs.  Universal Electronics

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Universal Electronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Electronics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward indicators, Universal Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BRP and Universal Electronics

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

The idea behind BRP Inc and Universal Electronics 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.