Correlation Between Universal Microelectronics and Pacific Hospital
Can any of the company-specific risk be diversified away by investing in both Universal Microelectronics and Pacific Hospital 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 Universal Microelectronics and Pacific Hospital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Microelectronics Co and Pacific Hospital Supply, you can compare the effects of market volatilities on Universal Microelectronics and Pacific Hospital 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 Universal Microelectronics with a short position of Pacific Hospital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Microelectronics and Pacific Hospital.
Diversification Opportunities for Universal Microelectronics and Pacific Hospital
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Universal and Pacific is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Universal Microelectronics Co and Pacific Hospital Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Hospital Supply and Universal 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 Universal Microelectronics Co are associated (or correlated) with Pacific Hospital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Hospital Supply has no effect on the direction of Universal Microelectronics i.e., Universal Microelectronics and Pacific Hospital go up and down completely randomly.
Pair Corralation between Universal Microelectronics and Pacific Hospital
Assuming the 90 days trading horizon Universal Microelectronics Co is expected to under-perform the Pacific Hospital. In addition to that, Universal Microelectronics is 7.5 times more volatile than Pacific Hospital Supply. It trades about -0.03 of its total potential returns per unit of risk. Pacific Hospital Supply is currently generating about -0.04 per unit of volatility. If you would invest 8,940 in Pacific Hospital Supply on August 30, 2024 and sell it today you would lose (40.00) from holding Pacific Hospital Supply or give up 0.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Universal Microelectronics Co vs. Pacific Hospital Supply
Performance |
| Timeline |
| Universal Microelectronics |
| Pacific Hospital Supply |
Universal Microelectronics and Pacific Hospital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Microelectronics and Pacific Hospital
The main advantage of trading using opposite Universal Microelectronics and Pacific Hospital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Microelectronics position performs unexpectedly, Pacific Hospital 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 Pacific Hospital will offset losses from the drop in Pacific Hospital's long position.The idea behind Universal Microelectronics Co and Pacific Hospital Supply 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 the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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