Correlation Between UMC Electronics and American Homes

Can any of the company-specific risk be diversified away by investing in both UMC Electronics and American Homes 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 American Homes 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 American Homes 4, you can compare the effects of market volatilities on UMC Electronics and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of UMC Electronics and American Homes.

Diversification Opportunities for UMC Electronics and American Homes

-0.18

Correlation Coefficient

UMC Electronics  American Homes

Good diversification

The 3 months correlation between UMC and American is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding UMC Electronics Co and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of UMC Electronics i.e., UMC Electronics and American Homes go up and down completely randomly.

Pair Corralation between UMC Electronics and American Homes

Assuming the 90 days horizon UMC Electronics Co is expected to generate 1.62 times more return on investment than American Homes. However, UMC Electronics is 1.62 times more volatile than American Homes 4. It trades about 0.03 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.02 per unit of risk. If you would invest  184.00  in UMC Electronics Co on December 29, 2024 and sell it today you would earn a total of  6.00  from holding UMC Electronics Co or generate 3.26% return on investment over 90 days.

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

UMC Electronics Co  vs.  American Homes 4

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.

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UMC Electronics and American Homes

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

The idea behind UMC Electronics Co and American Homes 4 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 Stocks Directory module to find actively traded stocks across global markets.