Correlation Between Universal Entertainment and UMC Electronics

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

By analyzing existing cross correlation between Universal Entertainment and UMC Electronics Co, you can compare the effects of market volatilities on Universal Entertainment and UMC Electronics 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 Universal Entertainment with a short position of UMC Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Entertainment and UMC Electronics.

Diversification Opportunities for Universal Entertainment and UMC Electronics

0.09

Correlation Coefficient

Universal Entertainment  UMC Electronics

Significant diversification

The 3 months correlation between Universal and UMC is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Universal Entertainment and UMC Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMC Electronics and Universal Entertainment 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 Universal Entertainment are associated (or correlated) with UMC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMC Electronics has no effect on the direction of Universal Entertainment i.e., Universal Entertainment and UMC Electronics go up and down completely randomly.

Pair Corralation between Universal Entertainment and UMC Electronics

Assuming the 90 days trading horizon Universal Entertainment is expected to generate 0.81 times more return on investment than UMC Electronics. However, Universal Entertainment is 1.23 times less risky than UMC Electronics. It trades about 0.06 of its potential returns per unit of risk. UMC Electronics Co is currently generating about 0.03 per unit of risk. If you would invest  600.00  in Universal Entertainment on December 30, 2024 and sell it today you would earn a total of  45.00  from holding Universal Entertainment or generate 7.5% return on investment over 90 days.

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

Universal Entertainment  vs.  UMC Electronics Co

Universal Entertainment

Risk-Adjusted Performance

Insignificant

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

UMC Electronics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UMC Electronics Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, UMC Electronics is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Universal Entertainment and UMC Electronics

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

The idea behind Universal Entertainment and UMC Electronics Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.