Correlation Between Daqo New and Ultra Clean

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

By analyzing existing cross correlation between Daqo New Energy and Ultra Clean Holdings, you can compare the effects of market volatilities on Daqo New and Ultra Clean 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 Daqo New with a short position of Ultra Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daqo New and Ultra Clean.

Diversification Opportunities for Daqo New and Ultra Clean

0.01

Correlation Coefficient

Daqo New  Ultra Clean

Significant diversification

The 3 months correlation between Daqo and Ultra is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Daqo New Energy and Ultra Clean Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Clean Holdings and Daqo New 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 Daqo New Energy are associated (or correlated) with Ultra Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Clean Holdings has no effect on the direction of Daqo New i.e., Daqo New and Ultra Clean go up and down completely randomly.

Pair Corralation between Daqo New and Ultra Clean

Allowing for the 90-day total investment horizon Daqo New Energy is expected to under-perform the Ultra Clean. In addition to that, Daqo New is 2.26 times more volatile than Ultra Clean Holdings. It trades about -0.05 of its total potential returns per unit of risk. Ultra Clean Holdings is currently generating about 0.01 per unit of volatility. If you would invest  3,507  in Ultra Clean Holdings on September 24, 2024 and sell it today you would lose (7.00) from holding Ultra Clean Holdings or give up 0.2% of portfolio value over 90 days.

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

Daqo New Energy  vs.  Ultra Clean Holdings

Daqo New Energy

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Daqo New Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Daqo New reported solid returns over the last few months and may actually be approaching a breakup point.

Ultra Clean Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Clean Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ultra Clean is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Daqo New and Ultra Clean

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

The idea behind Daqo New Energy and Ultra Clean Holdings 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.