Correlation Between Everlight Electronics and Universal Microelectronics

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

By analyzing existing cross correlation between Everlight Electronics Co and Universal Microelectronics Co, you can compare the effects of market volatilities on Everlight Electronics and Universal 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 Everlight Electronics with a short position of Universal Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Everlight Electronics and Universal Microelectronics.

Diversification Opportunities for Everlight Electronics and Universal Microelectronics

0.34

Correlation Coefficient

Everlight Electronics  Universal Microelectronics

Weak diversification

The 3 months correlation between Everlight and Universal is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Everlight Electronics Co and Universal Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Microelectronics and Everlight Electronics 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 Everlight Electronics Co are associated (or correlated) with Universal Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Microelectronics has no effect on the direction of Everlight Electronics i.e., Everlight Electronics and Universal Microelectronics go up and down completely randomly.

Pair Corralation between Everlight Electronics and Universal Microelectronics

Assuming the 90 days trading horizon Everlight Electronics Co is expected to generate 0.53 times more return on investment than Universal Microelectronics. However, Everlight Electronics Co is 1.89 times less risky than Universal Microelectronics. It trades about 0.13 of its potential returns per unit of risk. Universal Microelectronics Co is currently generating about -0.08 per unit of risk. If you would invest  7,760  in Everlight Electronics Co on September 15, 2024 and sell it today you would earn a total of  390.00  from holding Everlight Electronics Co or generate 5.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Everlight Electronics Co  vs.  Universal Microelectronics Co

Everlight Electronics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Everlight Electronics Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Everlight Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Universal Microelectronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Microelectronics Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Universal Microelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Everlight Electronics and Universal Microelectronics

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

The idea behind Everlight Electronics Co and Universal Microelectronics 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.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.