Correlation Between ASE Industrial and Universal Microelectronics

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

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

Diversification Opportunities for ASE Industrial and Universal Microelectronics

-0.33

Correlation Coefficient

ASE Industrial  Universal Microelectronics

Very good diversification

The 3 months correlation between ASE and Universal is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and Universal Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Microelectronics and ASE Industrial 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 ASE Industrial Holding 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 ASE Industrial i.e., ASE Industrial and Universal Microelectronics go up and down completely randomly.

Pair Corralation between ASE Industrial and Universal Microelectronics

Assuming the 90 days trading horizon ASE Industrial Holding is expected to generate 1.36 times more return on investment than Universal Microelectronics. However, ASE Industrial is 1.36 times more volatile than Universal Microelectronics Co. It trades about 0.17 of its potential returns per unit of risk. Universal Microelectronics Co is currently generating about 0.19 per unit of risk. If you would invest  16,100  in ASE Industrial Holding on December 1, 2024 and sell it today you would earn a total of  1,000.00  from holding ASE Industrial Holding or generate 6.21% return on investment over 90 days.

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

ASE Industrial Holding  vs.  Universal Microelectronics Co

ASE Industrial Holding

Risk-Adjusted Performance

OK

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

Universal Microelectronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Microelectronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Universal Microelectronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with ASE Industrial and Universal Microelectronics

The main advantage of trading using opposite ASE Industrial and Universal Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASE Industrial 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 ASE Industrial Holding 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.

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.