Correlation Between UMC Electronics and NIPPON STEEL

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

Diversification Opportunities for UMC Electronics and NIPPON STEEL

0.74

Correlation Coefficient

UMC Electronics  NIPPON STEEL

Poor diversification

The 3 months correlation between UMC and NIPPON is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding UMC Electronics Co and NIPPON STEEL SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON STEEL SPADR 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 NIPPON STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIPPON STEEL SPADR has no effect on the direction of UMC Electronics i.e., UMC Electronics and NIPPON STEEL go up and down completely randomly.

Pair Corralation between UMC Electronics and NIPPON STEEL

Assuming the 90 days horizon UMC Electronics is expected to generate 2.63 times less return on investment than NIPPON STEEL. In addition to that, UMC Electronics is 1.01 times more volatile than NIPPON STEEL SPADR. It trades about 0.03 of its total potential returns per unit of risk. NIPPON STEEL SPADR is currently generating about 0.07 per unit of volatility. If you would invest  615.00  in NIPPON STEEL SPADR on December 28, 2024 and sell it today you would earn a total of  65.00  from holding NIPPON STEEL SPADR or generate 10.57% return on investment over 90 days.

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

UMC Electronics Co  vs.  NIPPON STEEL SPADR

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.

NIPPON STEEL SPADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NIPPON STEEL SPADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NIPPON STEEL reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UMC Electronics and NIPPON STEEL

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

The idea behind UMC Electronics Co and NIPPON STEEL SPADR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.