Correlation Between CHINA EDUCATION and Universal Display

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

Diversification Opportunities for CHINA EDUCATION and Universal Display

0.9

Correlation Coefficient

CHINA EDUCATION  Universal Display

Almost no diversification

The 3 months correlation between CHINA and Universal is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding CHINA EDUCATION GROUP and Universal Display in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display 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 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 has no effect on the direction of CHINA EDUCATION i.e., CHINA EDUCATION and Universal Display go up and down completely randomly.

Pair Corralation between CHINA EDUCATION and Universal Display

Assuming the 90 days horizon CHINA EDUCATION GROUP is expected to under-perform the Universal Display. In addition to that, CHINA EDUCATION is 1.43 times more volatile than Universal Display. It trades about -0.18 of its total potential returns per unit of risk. Universal Display is currently generating about -0.17 per unit of volatility. If you would invest  18,746  in Universal Display on October 23, 2024 and sell it today you would lose (4,291) from holding Universal Display or give up 22.89% of portfolio value over 90 days.

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

CHINA EDUCATION GROUP  vs.  Universal Display

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Universal Display

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CHINA EDUCATION and Universal Display

The main advantage of trading using opposite CHINA EDUCATION and Universal Display positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA EDUCATION 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 CHINA EDUCATION GROUP and Universal Display 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.