Correlation Between CMC Magnetics and Novatek Microelectronics
Can any of the company-specific risk be diversified away by investing in both CMC Magnetics 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 CMC Magnetics and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMC Magnetics Corp and Novatek Microelectronics Corp, you can compare the effects of market volatilities on CMC Magnetics 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 CMC Magnetics with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMC Magnetics and Novatek Microelectronics.
Diversification Opportunities for CMC Magnetics and Novatek Microelectronics
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CMC and Novatek is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding CMC Magnetics Corp and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and CMC Magnetics 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 CMC Magnetics Corp 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 CMC Magnetics i.e., CMC Magnetics and Novatek Microelectronics go up and down completely randomly.
Pair Corralation between CMC Magnetics and Novatek Microelectronics
Assuming the 90 days trading horizon CMC Magnetics Corp is expected to under-perform the Novatek Microelectronics. But the stock apears to be less risky and, when comparing its historical volatility, CMC Magnetics Corp is 1.1 times less risky than Novatek Microelectronics. The stock trades about -0.12 of its potential returns per unit of risk. The Novatek Microelectronics Corp is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 51,000 in Novatek Microelectronics Corp on August 28, 2024 and sell it today you would lose (2,650) from holding Novatek Microelectronics Corp or give up 5.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMC Magnetics Corp vs. Novatek Microelectronics Corp
Performance |
| Timeline |
| CMC Magnetics Corp |
| Novatek Microelectronics |
CMC Magnetics and Novatek Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMC Magnetics and Novatek Microelectronics
The main advantage of trading using opposite CMC Magnetics and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMC Magnetics 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.| CMC Magnetics vs. Ritek Corp | CMC Magnetics vs. Macronix International Co | CMC Magnetics vs. Winbond Electronics Corp | CMC Magnetics vs. Compal Electronics |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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