Correlation Between China Airlines and Universal Microelectronics

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

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

Diversification Opportunities for China Airlines and Universal Microelectronics

0.82

Correlation Coefficient

China Airlines  Universal Microelectronics

Very poor diversification

The 3 months correlation between China and Universal is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding China Airlines and Universal Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Microelectronics and China Airlines 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 China Airlines 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 China Airlines i.e., China Airlines and Universal Microelectronics go up and down completely randomly.

Pair Corralation between China Airlines and Universal Microelectronics

Assuming the 90 days trading horizon China Airlines is expected to generate 1.07 times less return on investment than Universal Microelectronics. But when comparing it to its historical volatility, China Airlines is 2.36 times less risky than Universal Microelectronics. It trades about 0.31 of its potential returns per unit of risk. Universal Microelectronics Co is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,010  in Universal Microelectronics Co on September 5, 2024 and sell it today you would earn a total of  615.00  from holding Universal Microelectronics Co or generate 30.6% return on investment over 90 days.

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

China Airlines  vs.  Universal Microelectronics Co

China Airlines

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Universal Microelectronics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Microelectronics Co are ranked lower than 11 (%) 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 China Airlines and Universal Microelectronics

The main advantage of trading using opposite China Airlines and Universal Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Airlines 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 China Airlines 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.