Correlation Between Solar Applied and Novatek Microelectronics
Can any of the company-specific risk be diversified away by investing in both Solar Applied and Novatek 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 Solar Applied and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Solar Applied Materials and Novatek Microelectronics Corp, you can compare the effects of market volatilities on Solar Applied and Novatek 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 Solar Applied with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solar Applied and Novatek Microelectronics.
Diversification Opportunities for Solar Applied and Novatek Microelectronics
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Solar and Novatek is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Solar Applied Materials and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Solar Applied 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 Solar Applied Materials are associated (or correlated) with Novatek Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatek Microelectronics has no effect on the direction of Solar Applied i.e., Solar Applied and Novatek Microelectronics go up and down completely randomly.
Pair Corralation between Solar Applied and Novatek Microelectronics
Assuming the 90 days trading horizon Solar Applied Materials is expected to under-perform the Novatek Microelectronics. In addition to that, Solar Applied is 1.65 times more volatile than Novatek Microelectronics Corp. It trades about -0.02 of its total potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.0 per unit of volatility. If you would invest 53,200 in Novatek Microelectronics Corp on November 2, 2024 and sell it today you would lose (800.00) from holding Novatek Microelectronics Corp or give up 1.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Solar Applied Materials vs. Novatek Microelectronics Corp
Performance |
| Timeline |
| Solar Applied Materials |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Novatek Microelectronics |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
Solar Applied and Novatek Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Solar Applied and Novatek Microelectronics
The main advantage of trading using opposite Solar Applied and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solar Applied position performs unexpectedly, Novatek 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 Novatek Microelectronics will offset losses from the drop in Novatek Microelectronics' long position.The idea behind Solar Applied Materials and Novatek Microelectronics Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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