Correlation Between Universal Display and Kaiser Aluminum

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

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

Diversification Opportunities for Universal Display and Kaiser Aluminum

-0.33

Correlation Coefficient

Universal Display  Kaiser Aluminum

Very good diversification

The 3 months correlation between Universal and Kaiser is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Universal Display i.e., Universal Display and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Universal Display and Kaiser Aluminum

Assuming the 90 days horizon Universal Display is expected to generate 0.89 times more return on investment than Kaiser Aluminum. However, Universal Display is 1.13 times less risky than Kaiser Aluminum. It trades about 0.04 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.02 per unit of risk. If you would invest  9,828  in Universal Display on October 9, 2024 and sell it today you would earn a total of  4,747  from holding Universal Display or generate 48.3% 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.  Kaiser Aluminum

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 weak 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.

Kaiser Aluminum

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kaiser Aluminum may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Universal Display and Kaiser Aluminum

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

The idea behind Universal Display and Kaiser Aluminum 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.