Correlation Between Auto Trader and Universal Display

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

By analyzing existing cross correlation between Auto Trader Group and Universal Display Corp, you can compare the effects of market volatilities on Auto Trader and Universal Display 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 Auto Trader with a short position of Universal Display. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Universal Display.

Diversification Opportunities for Auto Trader and Universal Display

0.76

Correlation Coefficient

Auto Trader  Universal Display

Poor diversification

The 3 months correlation between Auto and Universal is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Universal Display Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display Corp and Auto Trader 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 Auto Trader Group are associated (or correlated) with Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display Corp has no effect on the direction of Auto Trader i.e., Auto Trader and Universal Display go up and down completely randomly.

Pair Corralation between Auto Trader and Universal Display

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.74 times more return on investment than Universal Display. However, Auto Trader Group is 1.35 times less risky than Universal Display. It trades about -0.09 of its potential returns per unit of risk. Universal Display Corp is currently generating about -0.27 per unit of risk. If you would invest  83,968  in Auto Trader Group on October 7, 2024 and sell it today you would lose (4,628) from holding Auto Trader Group or give up 5.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.12%
Values	Daily Returns

Auto Trader Group  vs.  Universal Display Corp

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Auto Trader is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Universal Display Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Auto Trader and Universal Display

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

The idea behind Auto Trader Group and Universal Display 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 Commodity Directory module to find actively traded commodities issued by global exchanges.