Correlation Between UMC Electronics and BYD ELECTRONIC

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

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

Diversification Opportunities for UMC Electronics and BYD ELECTRONIC

0.49

Correlation Coefficient

UMC Electronics  BYD ELECTRONIC

Very weak diversification

The 3 months correlation between UMC and BYD is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding UMC Electronics Co and BYD ELECTRONIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD ELECTRONIC and UMC Electronics 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 UMC Electronics Co are associated (or correlated) with BYD ELECTRONIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD ELECTRONIC has no effect on the direction of UMC Electronics i.e., UMC Electronics and BYD ELECTRONIC go up and down completely randomly.

Pair Corralation between UMC Electronics and BYD ELECTRONIC

Assuming the 90 days horizon UMC Electronics is expected to generate 1.03 times less return on investment than BYD ELECTRONIC. But when comparing it to its historical volatility, UMC Electronics Co is 1.81 times less risky than BYD ELECTRONIC. It trades about 0.03 of its potential returns per unit of risk. BYD ELECTRONIC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  513.00  in BYD ELECTRONIC on December 28, 2024 and sell it today you would lose (19.00) from holding BYD ELECTRONIC or give up 3.7% of portfolio value over 90 days.

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

UMC Electronics Co  vs.  BYD ELECTRONIC

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

BYD ELECTRONIC

Risk-Adjusted Performance

Weak

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

Pair Trading with UMC Electronics and BYD ELECTRONIC

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

The idea behind UMC Electronics Co and BYD ELECTRONIC 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .