Correlation Between Lam Research and Universal Display

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

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

Diversification Opportunities for Lam Research and Universal Display

0.43

Correlation Coefficient

Lam Research  Universal Display

Very weak diversification

The 3 months correlation between Lam and Universal is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research and Universal Display in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Display and Lam Research 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 Lam Research are associated (or correlated) with Universal Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Display has no effect on the direction of Lam Research i.e., Lam Research and Universal Display go up and down completely randomly.

Pair Corralation between Lam Research and Universal Display

Assuming the 90 days horizon Lam Research is expected to generate 1.06 times more return on investment than Universal Display. However, Lam Research is 1.06 times more volatile than Universal Display. It trades about 0.03 of its potential returns per unit of risk. Universal Display is currently generating about -0.03 per unit of risk. If you would invest  6,803  in Lam Research on September 3, 2024 and sell it today you would earn a total of  257.00  from holding Lam Research or generate 3.78% return on investment over 90 days.

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

Lam Research  vs.  Universal Display

Lam Research

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lam Research is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Universal Display

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Display has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Display is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lam Research and Universal Display

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

The idea behind Lam Research and Universal Display 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.