Correlation Between United Microelectronics and NVIDIA

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

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

Diversification Opportunities for United Microelectronics and NVIDIA

-0.79

Correlation Coefficient

United Microelectronics  NVIDIA

Pay attention - limited upside

The 3 months correlation between United and NVIDIA is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding United Microelectronics and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA and United Microelectronics 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 United Microelectronics are associated (or correlated) with NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of United Microelectronics i.e., United Microelectronics and NVIDIA go up and down completely randomly.

Pair Corralation between United Microelectronics and NVIDIA

Considering the 90-day investment horizon United Microelectronics is expected to under-perform the NVIDIA. But the stock apears to be less risky and, when comparing its historical volatility, United Microelectronics is 1.41 times less risky than NVIDIA. The stock trades about -0.16 of its potential returns per unit of risk. The NVIDIA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  10,620  in NVIDIA on September 4, 2024 and sell it today you would earn a total of  3,243  from holding NVIDIA or generate 30.54% return on investment over 90 days.

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

United Microelectronics  vs.  NVIDIA

United Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Microelectronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

NVIDIA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Microelectronics and NVIDIA

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

The idea behind United Microelectronics and NVIDIA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.