Correlation Between United Microelectronics and Western Digital

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

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

Diversification Opportunities for United Microelectronics and Western Digital

-0.29

Correlation Coefficient

United Microelectronics  Western Digital

Very good diversification

The 3 months correlation between United and Western is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding United Microelectronics and Western Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Digital 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 Western Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Digital has no effect on the direction of United Microelectronics i.e., United Microelectronics and Western Digital go up and down completely randomly.

Pair Corralation between United Microelectronics and Western Digital

Considering the 90-day investment horizon United Microelectronics is expected to under-perform the Western Digital. But the stock apears to be less risky and, when comparing its historical volatility, United Microelectronics is 1.37 times less risky than Western Digital. The stock trades about -0.25 of its potential returns per unit of risk. The Western Digital is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,409  in Western Digital on September 16, 2024 and sell it today you would earn a total of  103.00  from holding Western Digital or generate 1.61% return on investment over 90 days.

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

United Microelectronics  vs.  Western Digital

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 weak 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.

Western Digital

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Digital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Western Digital is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United Microelectronics and Western Digital

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

The idea behind United Microelectronics and Western Digital 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.