Correlation Between Novatek Microelectronics and Everlight Electronics
Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Everlight Electronics 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 Novatek Microelectronics and Everlight Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novatek Microelectronics Corp and Everlight Electronics Co, you can compare the effects of market volatilities on Novatek Microelectronics and Everlight Electronics 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 Novatek Microelectronics with a short position of Everlight Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Everlight Electronics.
Diversification Opportunities for Novatek Microelectronics and Everlight Electronics
0.15 | Correlation Coefficient |
Average diversification
The 3 months correlation between Novatek and Everlight is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Everlight Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everlight Electronics and Novatek 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 Novatek Microelectronics Corp are associated (or correlated) with Everlight Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everlight Electronics has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Everlight Electronics go up and down completely randomly.
Pair Corralation between Novatek Microelectronics and Everlight Electronics
Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to under-perform the Everlight Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Novatek Microelectronics Corp is 1.35 times less risky than Everlight Electronics. The stock trades about -0.11 of its potential returns per unit of risk. The Everlight Electronics Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 7,900 in Everlight Electronics Co on August 30, 2024 and sell it today you would lose (290.00) from holding Everlight Electronics Co or give up 3.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novatek Microelectronics Corp vs. Everlight Electronics Co
Performance |
| Timeline |
| Novatek Microelectronics |
| Everlight Electronics |
Novatek Microelectronics and Everlight Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novatek Microelectronics and Everlight Electronics
The main advantage of trading using opposite Novatek Microelectronics and Everlight Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novatek Microelectronics position performs unexpectedly, Everlight Electronics 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 Everlight Electronics will offset losses from the drop in Everlight Electronics' long position.The idea behind Novatek Microelectronics Corp and Everlight Electronics Co 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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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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