Correlation Between Caihong Display and Union Semiconductor

Can any of the company-specific risk be diversified away by investing in both Caihong Display and Union Semiconductor 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 Caihong Display and Union Semiconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Caihong Display Devices and Union Semiconductor Co, you can compare the effects of market volatilities on Caihong Display and Union Semiconductor 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 Caihong Display with a short position of Union Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caihong Display and Union Semiconductor.

Diversification Opportunities for Caihong Display and Union Semiconductor

0.91

Correlation Coefficient

Caihong Display  Union Semiconductor

Almost no diversification

The 3 months correlation between Caihong and Union is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Caihong Display Devices and Union Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Semiconductor and Caihong Display 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 Caihong Display Devices are associated (or correlated) with Union Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Semiconductor has no effect on the direction of Caihong Display i.e., Caihong Display and Union Semiconductor go up and down completely randomly.

Pair Corralation between Caihong Display and Union Semiconductor

Assuming the 90 days trading horizon Caihong Display Devices is expected to under-perform the Union Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, Caihong Display Devices is 1.16 times less risky than Union Semiconductor. The stock trades about -0.05 of its potential returns per unit of risk. The Union Semiconductor Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  904.00  in Union Semiconductor Co on August 30, 2024 and sell it today you would earn a total of  23.00  from holding Union Semiconductor Co or generate 2.54% return on investment over 90 days.

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

Caihong Display Devices  vs.  Union Semiconductor Co

Caihong Display Devices

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Caihong Display Devices are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Caihong Display may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Union Semiconductor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Union Semiconductor Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Semiconductor sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caihong Display and Union Semiconductor

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

The idea behind Caihong Display Devices and Union Semiconductor 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.