Correlation Between Novatek Microelectronics and Faraday Technology
Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Faraday Technology 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 Faraday Technology 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 Faraday Technology Corp, you can compare the effects of market volatilities on Novatek Microelectronics and Faraday Technology 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 Faraday Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Faraday Technology.
Diversification Opportunities for Novatek Microelectronics and Faraday Technology
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Novatek and Faraday is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Faraday Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faraday Technology Corp 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 Faraday Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faraday Technology Corp has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Faraday Technology go up and down completely randomly.
Pair Corralation between Novatek Microelectronics and Faraday Technology
Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.54 times more return on investment than Faraday Technology. However, Novatek Microelectronics Corp is 1.87 times less risky than Faraday Technology. It trades about -0.02 of its potential returns per unit of risk. Faraday Technology Corp is currently generating about -0.03 per unit of risk. If you would invest 59,800 in Novatek Microelectronics Corp on November 28, 2024 and sell it today you would lose (4,600) from holding Novatek Microelectronics Corp or give up 7.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novatek Microelectronics Corp vs. Faraday Technology Corp
Performance |
| Timeline |
| Novatek Microelectronics |
| Faraday Technology Corp |
Novatek Microelectronics and Faraday Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novatek Microelectronics and Faraday Technology
The main advantage of trading using opposite Novatek Microelectronics and Faraday Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novatek Microelectronics position performs unexpectedly, Faraday Technology 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 Faraday Technology will offset losses from the drop in Faraday Technology's long position.The idea behind Novatek Microelectronics Corp and Faraday Technology 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.
| Faraday Technology vs. Global Unichip Corp | Faraday Technology vs. Novatek Microelectronics Corp | Faraday Technology vs. Realtek Semiconductor Corp | Faraday Technology vs. Unimicron Technology Corp |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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