Correlation Between Unity Software and Align Technology

Can any of the company-specific risk be diversified away by investing in both Unity Software and Align Technology 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 Unity Software and Align Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Unity Software and Align Technology

0.85

Correlation Coefficient

Unity Software  Align Technology

Very poor diversification

The 3 months correlation between Unity and Align is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Unity Software and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology and Unity Software 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 Unity Software are associated (or correlated) with Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of Unity Software i.e., Unity Software and Align Technology go up and down completely randomly.

Pair Corralation between Unity Software and Align Technology

Assuming the 90 days trading horizon Unity Software is expected to under-perform the Align Technology. In addition to that, Unity Software is 1.89 times more volatile than Align Technology. It trades about -0.1 of its total potential returns per unit of risk. Align Technology is currently generating about 0.08 per unit of volatility. If you would invest  27,270  in Align Technology on March 11, 2024 and sell it today you would earn a total of  5,611  from holding Align Technology or generate 20.58% return on investment over 90 days.

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

Unity Software  vs.  Align Technology

Unity Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unity Software has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Unity Software and Align Technology

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

The idea behind Unity Software and Align Technology 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.