Correlation Between Big 5 and UMC Electronics
Can any of the company-specific risk be diversified away by investing in both Big 5 and UMC 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 Big 5 and UMC Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Big 5 Sporting and UMC Electronics Co, you can compare the effects of market volatilities on Big 5 and UMC 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 Big 5 with a short position of UMC Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and UMC Electronics.
Diversification Opportunities for Big 5 and UMC Electronics
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Big and UMC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and UMC Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMC Electronics and Big 5 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 Big 5 Sporting are associated (or correlated) with UMC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMC Electronics has no effect on the direction of Big 5 i.e., Big 5 and UMC Electronics go up and down completely randomly.
Pair Corralation between Big 5 and UMC Electronics
Assuming the 90 days horizon Big 5 Sporting is expected to generate 1.74 times more return on investment than UMC Electronics. However, Big 5 is 1.74 times more volatile than UMC Electronics Co. It trades about 0.16 of its potential returns per unit of risk. UMC Electronics Co is currently generating about -0.17 per unit of risk. If you would invest 140.00 in Big 5 Sporting on September 1, 2024 and sell it today you would earn a total of 17.00 from holding Big 5 Sporting or generate 12.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Big 5 Sporting vs. UMC Electronics Co
Performance |
| Timeline |
| Big 5 Sporting |
| UMC Electronics |
Big 5 and UMC Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Big 5 and UMC Electronics
The main advantage of trading using opposite Big 5 and UMC Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, UMC 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 UMC Electronics will offset losses from the drop in UMC Electronics' long position.The idea behind Big 5 Sporting and UMC Electronics Co 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.| UMC Electronics vs. Perdoceo Education | UMC Electronics vs. IDP EDUCATION LTD | UMC Electronics vs. Boiron SA | UMC Electronics vs. Khiron Life Sciences |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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