Correlation Between TXC Corp and United Microelectronics
Can any of the company-specific risk be diversified away by investing in both TXC Corp and United Microelectronics 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 TXC Corp and United Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TXC Corp and United Microelectronics, you can compare the effects of market volatilities on TXC Corp and United Microelectronics 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 TXC Corp with a short position of United Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of TXC Corp and United Microelectronics.
Diversification Opportunities for TXC Corp and United Microelectronics
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between TXC and United is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding TXC Corp and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics and TXC Corp 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 TXC Corp are associated (or correlated) with United Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Microelectronics has no effect on the direction of TXC Corp i.e., TXC Corp and United Microelectronics go up and down completely randomly.
Pair Corralation between TXC Corp and United Microelectronics
Assuming the 90 days trading horizon TXC Corp is expected to generate 1.47 times more return on investment than United Microelectronics. However, TXC Corp is 1.47 times more volatile than United Microelectronics. It trades about -0.09 of its potential returns per unit of risk. United Microelectronics is currently generating about -0.31 per unit of risk. If you would invest 11,650 in TXC Corp on September 2, 2024 and sell it today you would lose (1,150) from holding TXC Corp or give up 9.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
TXC Corp vs. United Microelectronics
Performance |
| Timeline |
| TXC Corp |
| United Microelectronics |
TXC Corp and United Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TXC Corp and United Microelectronics
The main advantage of trading using opposite TXC Corp and United Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TXC Corp position performs unexpectedly, United Microelectronics 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 United Microelectronics will offset losses from the drop in United Microelectronics' long position.The idea behind TXC Corp and United Microelectronics 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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