Correlation Between Microsoft and United Microelectronics

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

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

Diversification Opportunities for Microsoft and United Microelectronics

-0.59

Correlation Coefficient

Microsoft  United Microelectronics

Excellent diversification

The 3 months correlation between Microsoft and United is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and United Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and United Microelectronics go up and down completely randomly.

Pair Corralation between Microsoft and United Microelectronics

Assuming the 90 days trading horizon Microsoft is expected to generate 0.72 times more return on investment than United Microelectronics. However, Microsoft is 1.39 times less risky than United Microelectronics. It trades about 0.13 of its potential returns per unit of risk. United Microelectronics Corp is currently generating about -0.11 per unit of risk. If you would invest  36,474  in Microsoft on September 4, 2024 and sell it today you would earn a total of  4,376  from holding Microsoft or generate 12.0% return on investment over 90 days.

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

Microsoft  vs.  United Microelectronics Corp

Microsoft

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft 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 Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Microsoft and United Microelectronics

The main advantage of trading using opposite Microsoft and United Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and United Microelectronics 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.