Correlation Between Vanguard International and United Microelectronics

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

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

Diversification Opportunities for Vanguard International and United Microelectronics

0.85

Correlation Coefficient

Vanguard International  United Microelectronics

Very poor diversification

The 3 months correlation between Vanguard and United is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International Semicon and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics and Vanguard International 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 Vanguard International Semiconductor are associated (or correlated) with United Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Microelectronics has no effect on the direction of Vanguard International i.e., Vanguard International and United Microelectronics go up and down completely randomly.

Pair Corralation between Vanguard International and United Microelectronics

Assuming the 90 days trading horizon Vanguard International Semiconductor is expected to under-perform the United Microelectronics. In addition to that, Vanguard International is 1.64 times more volatile than United Microelectronics. It trades about -0.23 of its total potential returns per unit of risk. United Microelectronics is currently generating about -0.31 per unit of volatility. If you would invest  5,510  in United Microelectronics on September 3, 2024 and sell it today you would lose (1,155) from holding United Microelectronics or give up 20.96% of portfolio value over 90 days.

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

Vanguard International Semicon  vs.  United Microelectronics

Vanguard International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard International Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

United Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Vanguard International and United Microelectronics

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

The idea behind Vanguard International Semiconductor and United Microelectronics 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.