Correlation Between United Microelectronics and CMC Magnetics

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

By analyzing existing cross correlation between United Microelectronics and CMC Magnetics Corp, you can compare the effects of market volatilities on United Microelectronics and CMC Magnetics 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 CMC Magnetics. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Microelectronics and CMC Magnetics.

Diversification Opportunities for United Microelectronics and CMC Magnetics

0.66

Correlation Coefficient

United Microelectronics  CMC Magnetics

Poor diversification

The 3 months correlation between United and CMC is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding United Microelectronics and CMC Magnetics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Magnetics Corp 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 CMC Magnetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Magnetics Corp has no effect on the direction of United Microelectronics i.e., United Microelectronics and CMC Magnetics go up and down completely randomly.

Pair Corralation between United Microelectronics and CMC Magnetics

Assuming the 90 days trading horizon United Microelectronics is expected to under-perform the CMC Magnetics. But the stock apears to be less risky and, when comparing its historical volatility, United Microelectronics is 1.16 times less risky than CMC Magnetics. The stock trades about -0.33 of its potential returns per unit of risk. The CMC Magnetics Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,150  in CMC Magnetics Corp on September 12, 2024 and sell it today you would lose (20.00) from holding CMC Magnetics Corp or give up 1.74% of portfolio value over 90 days.

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

United Microelectronics  vs.  CMC Magnetics Corp

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

CMC Magnetics Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMC Magnetics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CMC Magnetics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with United Microelectronics and CMC Magnetics

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

The idea behind United Microelectronics and CMC Magnetics Corp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.