Correlation Between Sony Corp and Universal Electronics

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

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

Diversification Opportunities for Sony Corp and Universal Electronics

-0.54

Correlation Coefficient

Sony Corp  Universal Electronics

Excellent diversification

The 3 months correlation between Sony and Universal is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Sony Corp and Universal Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Electronics and Sony Corp 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 Sony Corp are associated (or correlated) with Universal Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Electronics has no effect on the direction of Sony Corp i.e., Sony Corp and Universal Electronics go up and down completely randomly.

Pair Corralation between Sony Corp and Universal Electronics

Assuming the 90 days horizon Sony Corp is expected to under-perform the Universal Electronics. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sony Corp is 2.08 times less risky than Universal Electronics. The pink sheet trades about -0.31 of its potential returns per unit of risk. The Universal Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,002  in Universal Electronics on January 30, 2024 and sell it today you would earn a total of  21.00  from holding Universal Electronics or generate 2.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Sony Corp  vs.  Universal Electronics

Sony Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sony Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Universal Electronics

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Electronics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward indicators, Universal Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sony Corp and Universal Electronics

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

The idea behind Sony Corp and Universal Electronics 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.