Correlation Between UPP and JAR

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

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

Diversification Opportunities for UPP and JAR

0.8

Correlation Coefficient

UPP  JAR

Very poor diversification

The 3 months correlation between UPP and JAR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding UPP and JAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAR 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 JAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAR has no effect on the direction of UPP i.e., UPP and JAR go up and down completely randomly.

Pair Corralation between UPP and JAR

Assuming the 90 days trading horizon UPP is expected to under-perform the JAR. In addition to that, UPP is 1.86 times more volatile than JAR. It trades about -0.14 of its total potential returns per unit of risk. JAR is currently generating about -0.11 per unit of volatility. If you would invest  0.28  in JAR on February 7, 2024 and sell it today you would lose (0.02) from holding JAR or give up 7.56% of portfolio value over 90 days.

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

UPP  vs.  JAR

UPP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UPP are ranked lower than 4 (%) 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.

JAR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JAR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, JAR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UPP and JAR

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

The idea behind UPP and JAR 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..