Correlation Between Universal Display and Empire Metals

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

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

Diversification Opportunities for Universal Display and Empire Metals

0.6

Correlation Coefficient

Universal Display  Empire Metals

Poor diversification

The 3 months correlation between Universal and Empire is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display Corp and Empire Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Metals 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 Corp are associated (or correlated) with Empire Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Metals Limited has no effect on the direction of Universal Display i.e., Universal Display and Empire Metals go up and down completely randomly.

Pair Corralation between Universal Display and Empire Metals

Assuming the 90 days trading horizon Universal Display is expected to generate 4.64 times less return on investment than Empire Metals. But when comparing it to its historical volatility, Universal Display Corp is 2.14 times less risky than Empire Metals. It trades about 0.03 of its potential returns per unit of risk. Empire Metals Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  195.00  in Empire Metals Limited on September 29, 2024 and sell it today you would earn a total of  465.00  from holding Empire Metals Limited or generate 238.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.17%
Values	Daily Returns

Universal Display Corp  vs.  Empire Metals Limited

Universal Display Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Empire Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empire Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Empire Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Universal Display and Empire Metals

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

The idea behind Universal Display Corp and Empire Metals 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.