Correlation Between Black Hills and United Microelectronics

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

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

Diversification Opportunities for Black Hills and United Microelectronics

0.1

Correlation Coefficient

Black Hills  United Microelectronics

Average diversification

The 3 months correlation between Black and United is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and United Microelectronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Microelectronics and Black Hills 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 Black Hills are associated (or correlated) with United Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Microelectronics has no effect on the direction of Black Hills i.e., Black Hills and United Microelectronics go up and down completely randomly.

Pair Corralation between Black Hills and United Microelectronics

Considering the 90-day investment horizon Black Hills is expected to generate 0.77 times more return on investment than United Microelectronics. However, Black Hills is 1.29 times less risky than United Microelectronics. It trades about 0.11 of its potential returns per unit of risk. United Microelectronics is currently generating about 0.06 per unit of risk. If you would invest  5,401  in Black Hills on February 4, 2024 and sell it today you would earn a total of  176.00  from holding Black Hills or generate 3.26% return on investment over 90 days.

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

Black Hills  vs.  United Microelectronics

Black Hills

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward-looking signals, Black Hills demonstrated solid returns over the last few months and may actually be approaching a breakup point.

United Microelectronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Microelectronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, United Microelectronics may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Black Hills and United Microelectronics

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

The idea behind Black Hills and United Microelectronics 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.