Correlation Between Elan Microelectronics and Novatek Microelectronics
Can any of the company-specific risk be diversified away by investing in both Elan Microelectronics 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 Elan Microelectronics and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Elan Microelectronics Corp and Novatek Microelectronics Corp, you can compare the effects of market volatilities on Elan Microelectronics 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 Elan Microelectronics with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elan Microelectronics and Novatek Microelectronics.
Diversification Opportunities for Elan Microelectronics and Novatek Microelectronics
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Elan and Novatek is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Elan Microelectronics 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 Elan Microelectronics 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 Elan Microelectronics 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 Elan Microelectronics i.e., Elan Microelectronics and Novatek Microelectronics go up and down completely randomly.
Pair Corralation between Elan Microelectronics and Novatek Microelectronics
Assuming the 90 days trading horizon Elan Microelectronics Corp is expected to generate 1.1 times more return on investment than Novatek Microelectronics. However, Elan Microelectronics is 1.1 times more volatile than Novatek Microelectronics Corp. It trades about 0.07 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.06 per unit of risk. If you would invest 8,285 in Elan Microelectronics Corp on August 28, 2024 and sell it today you would earn a total of 6,715 from holding Elan Microelectronics Corp or generate 81.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Elan Microelectronics Corp vs. Novatek Microelectronics Corp
Performance |
| Timeline |
| Elan Microelectronics |
| Novatek Microelectronics |
Elan Microelectronics and Novatek Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Elan Microelectronics and Novatek Microelectronics
The main advantage of trading using opposite Elan Microelectronics and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elan Microelectronics 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 Elan Microelectronics Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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