Correlation Between Teradyne and Ultra Clean

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

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

Diversification Opportunities for Teradyne and Ultra Clean

0.29

Correlation Coefficient

Teradyne  Ultra Clean

Modest diversification

The 3 months correlation between Teradyne and Ultra is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Teradyne and Ultra Clean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Clean Holdings and Teradyne 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 Teradyne 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 Holdings has no effect on the direction of Teradyne i.e., Teradyne and Ultra Clean go up and down completely randomly.

Pair Corralation between Teradyne and Ultra Clean

Considering the 90-day investment horizon Teradyne is expected to under-perform the Ultra Clean. But the stock apears to be less risky and, when comparing its historical volatility, Teradyne is 1.55 times less risky than Ultra Clean. The stock trades about -0.09 of its potential returns per unit of risk. The Ultra Clean Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,512  in Ultra Clean Holdings on August 30, 2024 and sell it today you would earn a total of  229.00  from holding Ultra Clean Holdings or generate 6.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Teradyne  vs.  Ultra Clean Holdings

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Ultra Clean Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Clean Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ultra Clean is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Teradyne and Ultra Clean

The main advantage of trading using opposite Teradyne and Ultra Clean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teradyne 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 Teradyne and Ultra Clean Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.