Correlation Between Stepan and United Microelectronics

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

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

Diversification Opportunities for Stepan and United Microelectronics

0.24

Correlation Coefficient

Stepan  United Microelectronics

Modest diversification

The 3 months correlation between Stepan and United is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and United Microelectronics go up and down completely randomly.

Pair Corralation between Stepan and United Microelectronics

Considering the 90-day investment horizon Stepan Company is expected to generate 1.08 times more return on investment than United Microelectronics. However, Stepan is 1.08 times more volatile than United Microelectronics. It trades about -0.08 of its potential returns per unit of risk. United Microelectronics is currently generating about -0.24 per unit of risk. If you would invest  7,513  in Stepan Company on September 21, 2024 and sell it today you would lose (724.00) from holding Stepan Company or give up 9.64% of portfolio value over 90 days.

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

Stepan Company  vs.  United Microelectronics

Stepan Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

United Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Stepan and United Microelectronics

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