Correlation Between Novatek Microelectronics and Champion Microelectronic
Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Champion Microelectronic 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 Champion Microelectronic 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 Champion Microelectronic Corp, you can compare the effects of market volatilities on Novatek Microelectronics and Champion Microelectronic 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 Champion Microelectronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Champion Microelectronic.
Diversification Opportunities for Novatek Microelectronics and Champion Microelectronic
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Novatek and Champion is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Champion Microelectronic Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Microelectronic 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 Champion Microelectronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Microelectronic has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Champion Microelectronic go up and down completely randomly.
Pair Corralation between Novatek Microelectronics and Champion Microelectronic
Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.43 times more return on investment than Champion Microelectronic. However, Novatek Microelectronics Corp is 2.34 times less risky than Champion Microelectronic. It trades about 0.11 of its potential returns per unit of risk. Champion Microelectronic Corp is currently generating about -0.02 per unit of risk. If you would invest 49,500 in Novatek Microelectronics Corp on November 7, 2024 and sell it today you would earn a total of 4,400 from holding Novatek Microelectronics Corp or generate 8.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novatek Microelectronics Corp vs. Champion Microelectronic Corp
Performance |
| Timeline |
| Novatek Microelectronics |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Champion Microelectronic |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Novatek Microelectronics and Champion Microelectronic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novatek Microelectronics and Champion Microelectronic
The main advantage of trading using opposite Novatek Microelectronics and Champion Microelectronic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novatek Microelectronics position performs unexpectedly, Champion Microelectronic 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 Champion Microelectronic will offset losses from the drop in Champion Microelectronic's long position.The idea behind Novatek Microelectronics Corp and Champion Microelectronic 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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