Correlation Between ASE Industrial and United Microelectronics

Can any of the company-specific risk be diversified away by investing in both ASE Industrial 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 ASE Industrial and United 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 United Microelectronics, you can compare the effects of market volatilities on ASE Industrial 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 ASE Industrial with a short position of United Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASE Industrial and United Microelectronics.

Diversification Opportunities for ASE Industrial and United Microelectronics

0.05

Correlation Coefficient

ASE Industrial  United Microelectronics

Significant diversification

The 3 months correlation between ASE and United is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding ASE Industrial Holding and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United 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 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 ASE Industrial i.e., ASE Industrial and United Microelectronics go up and down completely randomly.

Pair Corralation between ASE Industrial and United Microelectronics

Considering the 90-day investment horizon ASE Industrial Holding is expected to generate 1.13 times more return on investment than United Microelectronics. However, ASE Industrial is 1.13 times more volatile than United Microelectronics. It trades about 0.06 of its potential returns per unit of risk. United Microelectronics is currently generating about -0.17 per unit of risk. If you would invest  911.00  in ASE Industrial Holding on September 2, 2024 and sell it today you would earn a total of  61.00  from holding ASE Industrial Holding or generate 6.7% return on investment over 90 days.

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

ASE Industrial Holding  vs.  United Microelectronics

ASE Industrial Holding

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ASE Industrial Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, ASE Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ASE Industrial and United Microelectronics

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

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.