Correlation Between Universal Display and Aeorema Communications

Can any of the company-specific risk be diversified away by investing in both Universal Display and Aeorema Communications 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 Display and Aeorema Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Universal Display Corp and Aeorema Communications Plc, you can compare the effects of market volatilities on Universal Display and Aeorema Communications 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 Display with a short position of Aeorema Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Display and Aeorema Communications.

Diversification Opportunities for Universal Display and Aeorema Communications

0.49

Correlation Coefficient

Universal Display  Aeorema Communications

Very weak diversification

The 3 months correlation between Universal and Aeorema is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display Corp and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications and Universal Display 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 Display Corp are associated (or correlated) with Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of Universal Display i.e., Universal Display and Aeorema Communications go up and down completely randomly.

Pair Corralation between Universal Display and Aeorema Communications

Assuming the 90 days trading horizon Universal Display Corp is expected to generate 1.47 times more return on investment than Aeorema Communications. However, Universal Display is 1.47 times more volatile than Aeorema Communications Plc. It trades about -0.06 of its potential returns per unit of risk. Aeorema Communications Plc is currently generating about -0.12 per unit of risk. If you would invest  16,650  in Universal Display Corp on December 1, 2024 and sell it today you would lose (1,417) from holding Universal Display Corp or give up 8.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.55%
Values	Daily Returns

Universal Display Corp  vs.  Aeorema Communications Plc

Universal Display Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Aeorema Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Universal Display and Aeorema Communications

The main advantage of trading using opposite Universal Display and Aeorema Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Display position performs unexpectedly, Aeorema Communications 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 Aeorema Communications will offset losses from the drop in Aeorema Communications' long position.

The idea behind Universal Display Corp and Aeorema Communications Plc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.