Correlation Between Novatek Microelectronics and Action Electronics

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Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Action 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 Action 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 Action Electronics Co, you can compare the effects of market volatilities on Novatek Microelectronics and Action 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 Action Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Action Electronics.

Diversification Opportunities for Novatek Microelectronics and Action Electronics

-0.57
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Novatek and Action is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Action Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Action 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 Action Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Action Electronics has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Action Electronics go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Action Electronics

Assuming the 90 days trading horizon Novatek Microelectronics is expected to generate 5.67 times less return on investment than Action Electronics. But when comparing it to its historical volatility, Novatek Microelectronics Corp is 2.75 times less risky than Action Electronics. It trades about 0.03 of its potential returns per unit of risk. Action Electronics Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,925  in Action Electronics Co on September 13, 2024 and sell it today you would earn a total of  75.00  from holding Action Electronics Co or generate 3.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Novatek Microelectronics Corp  vs.  Action Electronics Co

 Performance 
       Timeline  
Novatek Microelectronics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Novatek Microelectronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.
Action Electronics 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Action Electronics Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Action Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Novatek Microelectronics and Action Electronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Novatek Microelectronics and Action Electronics

The main advantage of trading using opposite Novatek Microelectronics and Action Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novatek Microelectronics position performs unexpectedly, Action 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 Action Electronics will offset losses from the drop in Action Electronics' long position.
The idea behind Novatek Microelectronics Corp and Action 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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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.

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