Correlation Between Pernod Ricard and Union Pacific

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Can any of the company-specific risk be diversified away by investing in both Pernod Ricard and Union Pacific 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 Pernod Ricard and Union Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pernod Ricard SA and Union Pacific, you can compare the effects of market volatilities on Pernod Ricard and Union Pacific 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 Pernod Ricard with a short position of Union Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pernod Ricard and Union Pacific.

Diversification Opportunities for Pernod Ricard and Union Pacific

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Pernod and Union is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Pernod Ricard SA and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific and Pernod Ricard 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 Pernod Ricard SA are associated (or correlated) with Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Pernod Ricard i.e., Pernod Ricard and Union Pacific go up and down completely randomly.

Pair Corralation between Pernod Ricard and Union Pacific

Assuming the 90 days horizon Pernod Ricard SA is expected to generate 1.01 times more return on investment than Union Pacific. However, Pernod Ricard is 1.01 times more volatile than Union Pacific. It trades about 0.28 of its potential returns per unit of risk. Union Pacific is currently generating about 0.12 per unit of risk. If you would invest  17,940  in Pernod Ricard SA on September 9, 2022 and sell it today you would earn a total of  1,776  from holding Pernod Ricard SA or generate 9.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Pernod Ricard SA  vs.  Union Pacific

 Performance (%) 
       Timeline  
Pernod Ricard SA 
Pernod Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Pernod Ricard SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Pernod Ricard is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pernod Price Channel

Union Pacific 
Union Performance
0 of 100
Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm insiders.

Union Price Channel

Pernod Ricard and Union Pacific Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pernod Ricard and Union Pacific

The main advantage of trading using opposite Pernod Ricard and Union Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pernod Ricard position performs unexpectedly, Union Pacific 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 Union Pacific will offset losses from the drop in Union Pacific's long position.
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The idea behind Pernod Ricard SA and Union Pacific 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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Check out your portfolio center. 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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