Correlation Between Universal Display and Air China

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

By analyzing existing cross correlation between Universal Display and Air China Limited, you can compare the effects of market volatilities on Universal Display and Air China 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 Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Display and Air China.

Diversification Opportunities for Universal Display and Air China

-0.89

Correlation Coefficient

Universal Display  Air China

Pay attention - limited upside

The 3 months correlation between Universal and Air is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited 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 Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China Limited has no effect on the direction of Universal Display i.e., Universal Display and Air China go up and down completely randomly.

Pair Corralation between Universal Display and Air China

Assuming the 90 days horizon Universal Display is expected to under-perform the Air China. But the stock apears to be less risky and, when comparing its historical volatility, Universal Display is 1.63 times less risky than Air China. The stock trades about -0.19 of its potential returns per unit of risk. The Air China Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Air China Limited on October 6, 2024 and sell it today you would earn a total of  9.00  from holding Air China Limited or generate 17.65% return on investment over 90 days.

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

Universal Display  vs.  Air China Limited

Universal Display

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Air China Limited

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Air China Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Air China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Display and Air China

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

The idea behind Universal Display and Air China Limited 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..