Correlation Between Global Unichip and Nuvoton Technology

Can any of the company-specific risk be diversified away by investing in both Global Unichip and Nuvoton Technology 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 Global Unichip and Nuvoton Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Global Unichip Corp and Nuvoton Technology Corp, you can compare the effects of market volatilities on Global Unichip and Nuvoton Technology 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 Global Unichip with a short position of Nuvoton Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Unichip and Nuvoton Technology.

Diversification Opportunities for Global Unichip and Nuvoton Technology

0.69

Correlation Coefficient

Global Unichip  Nuvoton Technology

Poor diversification

The 3 months correlation between Global and Nuvoton is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Global Unichip Corp and Nuvoton Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvoton Technology Corp and Global Unichip 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 Global Unichip Corp are associated (or correlated) with Nuvoton Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvoton Technology Corp has no effect on the direction of Global Unichip i.e., Global Unichip and Nuvoton Technology go up and down completely randomly.

Pair Corralation between Global Unichip and Nuvoton Technology

Assuming the 90 days trading horizon Global Unichip is expected to generate 1.05 times less return on investment than Nuvoton Technology. But when comparing it to its historical volatility, Global Unichip Corp is 1.16 times less risky than Nuvoton Technology. It trades about 0.1 of its potential returns per unit of risk. Nuvoton Technology Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,000  in Nuvoton Technology Corp on September 12, 2024 and sell it today you would earn a total of  1,450  from holding Nuvoton Technology Corp or generate 18.13% return on investment over 90 days.

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

Global Unichip Corp  vs.  Nuvoton Technology Corp

Global Unichip Corp

Risk-Adjusted Performance

8 of 100

OK

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

Nuvoton Technology Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nuvoton Technology Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nuvoton Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Unichip and Nuvoton Technology

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

The idea behind Global Unichip Corp and Nuvoton Technology Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.