Correlation Between Global Unichip and Elan Microelectronics

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

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

Diversification Opportunities for Global Unichip and Elan Microelectronics

0.64

Correlation Coefficient

Global Unichip  Elan Microelectronics

Poor diversification

The 3 months correlation between Global and Elan is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Global Unichip Corp and Elan Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elan Microelectronics and Global Unichip 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 Global Unichip Corp are associated (or correlated) with Elan Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elan Microelectronics has no effect on the direction of Global Unichip i.e., Global Unichip and Elan Microelectronics go up and down completely randomly.

Pair Corralation between Global Unichip and Elan Microelectronics

Assuming the 90 days trading horizon Global Unichip Corp is expected to generate 1.56 times more return on investment than Elan Microelectronics. However, Global Unichip is 1.56 times more volatile than Elan Microelectronics Corp. It trades about 0.11 of its potential returns per unit of risk. Elan Microelectronics Corp is currently generating about 0.04 per unit of risk. If you would invest  106,000  in Global Unichip Corp on September 12, 2024 and sell it today you would earn a total of  21,000  from holding Global Unichip Corp or generate 19.81% return on investment over 90 days.

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

Global Unichip Corp  vs.  Elan Microelectronics Corp

Global Unichip Corp

Risk-Adjusted Performance

8 of 100

OK

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

Elan Microelectronics

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elan Microelectronics Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Elan Microelectronics 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 Global Unichip and Elan Microelectronics

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

The idea behind Global Unichip Corp and Elan Microelectronics 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.