Correlation Between UMC Electronics and Rio Tinto

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

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

Diversification Opportunities for UMC Electronics and Rio Tinto

-0.03

Correlation Coefficient

UMC Electronics  Rio Tinto

Good diversification

The 3 months correlation between UMC and Rio is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding UMC Electronics Co and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group and UMC Electronics 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 UMC Electronics Co are associated (or correlated) with Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of UMC Electronics i.e., UMC Electronics and Rio Tinto go up and down completely randomly.

Pair Corralation between UMC Electronics and Rio Tinto

Assuming the 90 days horizon UMC Electronics Co is expected to under-perform the Rio Tinto. In addition to that, UMC Electronics is 1.72 times more volatile than Rio Tinto Group. It trades about -0.03 of its total potential returns per unit of risk. Rio Tinto Group is currently generating about 0.0 per unit of volatility. If you would invest  6,095  in Rio Tinto Group on September 3, 2024 and sell it today you would lose (159.00) from holding Rio Tinto Group or give up 2.61% of portfolio value over 90 days.

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

UMC Electronics Co  vs.  Rio Tinto Group

UMC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UMC Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Rio Tinto Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Tinto Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rio Tinto may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with UMC Electronics and Rio Tinto

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

The idea behind UMC Electronics Co and Rio Tinto Group 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.