Correlation Between Universal Display and Versarien PLC

Can any of the company-specific risk be diversified away by investing in both Universal Display and Versarien PLC 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 Versarien PLC 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 Versarien PLC, you can compare the effects of market volatilities on Universal Display and Versarien PLC 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 Versarien PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Display and Versarien PLC.

Diversification Opportunities for Universal Display and Versarien PLC

-0.42

Correlation Coefficient

Universal Display  Versarien PLC

Very good diversification

The 3 months correlation between Universal and Versarien is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display Corp and Versarien PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Versarien PLC 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 Versarien PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Versarien PLC has no effect on the direction of Universal Display i.e., Universal Display and Versarien PLC go up and down completely randomly.

Pair Corralation between Universal Display and Versarien PLC

Assuming the 90 days trading horizon Universal Display Corp is expected to under-perform the Versarien PLC. But the stock apears to be less risky and, when comparing its historical volatility, Universal Display Corp is 2.48 times less risky than Versarien PLC. The stock trades about -0.02 of its potential returns per unit of risk. The Versarien PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.30  in Versarien PLC on November 28, 2024 and sell it today you would lose (0.15) from holding Versarien PLC or give up 4.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.32%
Values	Daily Returns

Universal Display Corp  vs.  Versarien 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 comparatively stable basic indicators, Universal Display is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Versarien PLC

Risk-Adjusted Performance

Insignificant

Over the last 90 days Versarien PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Versarien PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Universal Display and Versarien PLC

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

The idea behind Universal Display Corp and Versarien 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.