Correlation Between Universal Display and Japan Medical

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

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

Diversification Opportunities for Universal Display and Japan Medical

0.56

Correlation Coefficient

Universal Display  Japan Medical

Very weak diversification

The 3 months correlation between Universal and Japan is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Universal Display and Japan Medical Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Medical Dynamic and Universal Display 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 Universal Display are associated (or correlated) with Japan Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Medical Dynamic has no effect on the direction of Universal Display i.e., Universal Display and Japan Medical go up and down completely randomly.

Pair Corralation between Universal Display and Japan Medical

Assuming the 90 days horizon Universal Display is expected to generate 1.76 times more return on investment than Japan Medical. However, Universal Display is 1.76 times more volatile than Japan Medical Dynamic. It trades about -0.02 of its potential returns per unit of risk. Japan Medical Dynamic is currently generating about -0.21 per unit of risk. If you would invest  16,613  in Universal Display on September 5, 2024 and sell it today you would lose (913.00) from holding Universal Display or give up 5.5% of portfolio value over 90 days.

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

Universal Display  vs.  Japan Medical Dynamic

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.

Japan Medical Dynamic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Medical Dynamic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

Pair Trading with Universal Display and Japan Medical

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

The idea behind Universal Display and Japan Medical Dynamic 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.