Correlation Between Ultra Clean and Sandfire Resources

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

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

Diversification Opportunities for Ultra Clean and Sandfire Resources

0.02

Correlation Coefficient

Ultra Clean  Sandfire Resources

Significant diversification

The 3 months correlation between Ultra and Sandfire is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Clean Holdings and Sandfire Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandfire Resources and Ultra Clean 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 Ultra Clean Holdings are associated (or correlated) with Sandfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandfire Resources has no effect on the direction of Ultra Clean i.e., Ultra Clean and Sandfire Resources go up and down completely randomly.

Pair Corralation between Ultra Clean and Sandfire Resources

Assuming the 90 days horizon Ultra Clean Holdings is expected to generate 1.72 times more return on investment than Sandfire Resources. However, Ultra Clean is 1.72 times more volatile than Sandfire Resources Limited. It trades about 0.09 of its potential returns per unit of risk. Sandfire Resources Limited is currently generating about -0.06 per unit of risk. If you would invest  3,220  in Ultra Clean Holdings on October 25, 2024 and sell it today you would earn a total of  500.00  from holding Ultra Clean Holdings or generate 15.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Ultra Clean Holdings  vs.  Sandfire Resources Limited

Ultra Clean Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Clean Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ultra Clean reported solid returns over the last few months and may actually be approaching a breakup point.

Sandfire Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandfire Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ultra Clean and Sandfire Resources

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

The idea behind Ultra Clean Holdings and Sandfire Resources Limited 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.