Correlation Between United Microelectronics and NORFOLK

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

By analyzing existing cross correlation between United Microelectronics and NORFOLK SOUTHN P, you can compare the effects of market volatilities on United Microelectronics and NORFOLK 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 United Microelectronics with a short position of NORFOLK. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Microelectronics and NORFOLK.

Diversification Opportunities for United Microelectronics and NORFOLK

0.62

Correlation Coefficient

United Microelectronics  NORFOLK

Poor diversification

The 3 months correlation between United and NORFOLK is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding United Microelectronics and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P and United Microelectronics 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 United Microelectronics are associated (or correlated) with NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of United Microelectronics i.e., United Microelectronics and NORFOLK go up and down completely randomly.

Pair Corralation between United Microelectronics and NORFOLK

Considering the 90-day investment horizon United Microelectronics is expected to under-perform the NORFOLK. But the stock apears to be less risky and, when comparing its historical volatility, United Microelectronics is 2.14 times less risky than NORFOLK. The stock trades about -0.17 of its potential returns per unit of risk. The NORFOLK SOUTHN P is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  8,934  in NORFOLK SOUTHN P on September 24, 2024 and sell it today you would lose (340.00) from holding NORFOLK SOUTHN P or give up 3.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	75.0%
Values	Daily Returns

United Microelectronics  vs.  NORFOLK SOUTHN P

United Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NORFOLK SOUTHN P investors.

Pair Trading with United Microelectronics and NORFOLK

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

The idea behind United Microelectronics and NORFOLK SOUTHN P 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 .