Correlation Between Universal Display and XLMedia PLC

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

By analyzing existing cross correlation between Universal Display and XLMedia PLC, you can compare the effects of market volatilities on Universal Display and XLMedia PLC 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 Universal Display with a short position of XLMedia PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Display and XLMedia PLC.

Diversification Opportunities for Universal Display and XLMedia PLC

-0.28

Correlation Coefficient

Universal Display  XLMedia PLC

Very good diversification

The 3 months correlation between Universal and XLMedia is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia PLC and Universal Display 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 Universal Display are associated (or correlated) with XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of Universal Display i.e., Universal Display and XLMedia PLC go up and down completely randomly.

Pair Corralation between Universal Display and XLMedia PLC

Assuming the 90 days horizon Universal Display is expected to under-perform the XLMedia PLC. But the stock apears to be less risky and, when comparing its historical volatility, Universal Display is 1.93 times less risky than XLMedia PLC. The stock trades about -0.01 of its potential returns per unit of risk. The XLMedia PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9.90  in XLMedia PLC on December 30, 2024 and sell it today you would earn a total of  1.10  from holding XLMedia PLC or generate 11.11% return on investment over 90 days.

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

Universal Display  vs.  XLMedia PLC

Universal Display

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Display has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Display is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

XLMedia PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XLMedia PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, XLMedia PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Display and XLMedia PLC

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

The idea behind Universal Display and XLMedia PLC 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.