Correlation Between United Microelectronics and Phison Electronics
Can any of the company-specific risk be diversified away by investing in both United Microelectronics and Phison 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 United Microelectronics and Phison Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Microelectronics and Phison Electronics, you can compare the effects of market volatilities on United Microelectronics and Phison 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 United Microelectronics with a short position of Phison Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Microelectronics and Phison Electronics.
Diversification Opportunities for United Microelectronics and Phison Electronics
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and Phison is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding United Microelectronics and Phison Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phison Electronics and United Microelectronics 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 United Microelectronics are associated (or correlated) with Phison Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phison Electronics has no effect on the direction of United Microelectronics i.e., United Microelectronics and Phison Electronics go up and down completely randomly.
Pair Corralation between United Microelectronics and Phison Electronics
Assuming the 90 days trading horizon United Microelectronics is expected to under-perform the Phison Electronics. But the stock apears to be less risky and, when comparing its historical volatility, United Microelectronics is 1.5 times less risky than Phison Electronics. The stock trades about -0.02 of its potential returns per unit of risk. The Phison Electronics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 48,867 in Phison Electronics on September 2, 2024 and sell it today you would lose (2,717) from holding Phison Electronics or give up 5.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Microelectronics vs. Phison Electronics
Performance |
| Timeline |
| United Microelectronics |
| Phison Electronics |
United Microelectronics and Phison Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Microelectronics and Phison Electronics
The main advantage of trading using opposite United Microelectronics and Phison Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Microelectronics position performs unexpectedly, Phison 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 Phison Electronics will offset losses from the drop in Phison Electronics' long position.The idea behind United Microelectronics and Phison 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.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 the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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