Correlation Between CHINA EDUCATION and ULTRA CLEAN

Can any of the company-specific risk be diversified away by investing in both CHINA EDUCATION and ULTRA CLEAN 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 CHINA EDUCATION and ULTRA CLEAN into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHINA EDUCATION GROUP and ULTRA CLEAN HLDGS, you can compare the effects of market volatilities on CHINA EDUCATION and ULTRA CLEAN 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 CHINA EDUCATION with a short position of ULTRA CLEAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA EDUCATION and ULTRA CLEAN.

Diversification Opportunities for CHINA EDUCATION and ULTRA CLEAN

-0.23

Correlation Coefficient

CHINA EDUCATION  ULTRA CLEAN

Very good diversification

The 3 months correlation between CHINA and ULTRA is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding CHINA EDUCATION GROUP and ULTRA CLEAN HLDGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ULTRA CLEAN HLDGS and CHINA EDUCATION 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 CHINA EDUCATION GROUP are associated (or correlated) with ULTRA CLEAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ULTRA CLEAN HLDGS has no effect on the direction of CHINA EDUCATION i.e., CHINA EDUCATION and ULTRA CLEAN go up and down completely randomly.

Pair Corralation between CHINA EDUCATION and ULTRA CLEAN

Assuming the 90 days horizon CHINA EDUCATION GROUP is expected to generate 1.65 times more return on investment than ULTRA CLEAN. However, CHINA EDUCATION is 1.65 times more volatile than ULTRA CLEAN HLDGS. It trades about 0.03 of its potential returns per unit of risk. ULTRA CLEAN HLDGS is currently generating about 0.02 per unit of risk. If you would invest  32.00  in CHINA EDUCATION GROUP on September 26, 2024 and sell it today you would earn a total of  10.00  from holding CHINA EDUCATION GROUP or generate 31.25% return on investment over 90 days.

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

CHINA EDUCATION GROUP  vs.  ULTRA CLEAN HLDGS

CHINA EDUCATION GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA EDUCATION GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ULTRA CLEAN HLDGS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ULTRA CLEAN HLDGS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, ULTRA CLEAN is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CHINA EDUCATION and ULTRA CLEAN

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

The idea behind CHINA EDUCATION GROUP and ULTRA CLEAN HLDGS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.