Correlation Between Advantech and Universal Microelectronics

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

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

Diversification Opportunities for Advantech and Universal Microelectronics

0.17

Correlation Coefficient

Advantech  Universal Microelectronics

Average diversification

The 3 months correlation between Advantech and Universal is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Advantech Co and Universal Microelectronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Microelectronics and Advantech 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 Advantech Co are associated (or correlated) with Universal Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Microelectronics has no effect on the direction of Advantech i.e., Advantech and Universal Microelectronics go up and down completely randomly.

Pair Corralation between Advantech and Universal Microelectronics

Assuming the 90 days trading horizon Advantech Co is expected to under-perform the Universal Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, Advantech Co is 2.1 times less risky than Universal Microelectronics. The stock trades about -0.03 of its potential returns per unit of risk. The Universal Microelectronics Co is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,145  in Universal Microelectronics Co on September 3, 2024 and sell it today you would earn a total of  495.00  from holding Universal Microelectronics Co or generate 23.08% return on investment over 90 days.

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

Advantech Co  vs.  Universal Microelectronics Co

Advantech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Universal Microelectronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Microelectronics Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Universal Microelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advantech and Universal Microelectronics

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

The idea behind Advantech Co and Universal Microelectronics Co 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.