Correlation Between PENN NATL and UMC Electronics

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

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

Diversification Opportunities for PENN NATL and UMC Electronics

-0.16

Correlation Coefficient

PENN NATL  UMC Electronics

Good diversification

The 3 months correlation between PENN and UMC is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and UMC Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMC Electronics and PENN NATL 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 PENN NATL GAMING are associated (or correlated) with UMC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMC Electronics has no effect on the direction of PENN NATL i.e., PENN NATL and UMC Electronics go up and down completely randomly.

Pair Corralation between PENN NATL and UMC Electronics

Assuming the 90 days trading horizon PENN NATL GAMING is expected to under-perform the UMC Electronics. In addition to that, PENN NATL is 2.79 times more volatile than UMC Electronics Co. It trades about -0.19 of its total potential returns per unit of risk. UMC Electronics Co is currently generating about -0.04 per unit of volatility. If you would invest  212.00  in UMC Electronics Co on February 7, 2024 and sell it today you would lose (2.00) from holding UMC Electronics Co or give up 0.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

PENN NATL GAMING  vs.  UMC Electronics Co

PENN NATL GAMING

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PENN NATL GAMING has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 nearly stable basic indicators, UMC Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PENN NATL and UMC Electronics

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

The idea behind PENN NATL GAMING and UMC Electronics Co 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.