Correlation Between Novatek Microelectronics and Formosa Sumco
Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Formosa Sumco 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 Formosa Sumco 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 Formosa Sumco Technology, you can compare the effects of market volatilities on Novatek Microelectronics and Formosa Sumco 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 Formosa Sumco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Formosa Sumco.
Diversification Opportunities for Novatek Microelectronics and Formosa Sumco
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Novatek and Formosa is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Formosa Sumco Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosa Sumco Technology 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 Formosa Sumco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosa Sumco Technology has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Formosa Sumco go up and down completely randomly.
Pair Corralation between Novatek Microelectronics and Formosa Sumco
Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.7 times more return on investment than Formosa Sumco. However, Novatek Microelectronics Corp is 1.43 times less risky than Formosa Sumco. It trades about 0.18 of its potential returns per unit of risk. Formosa Sumco Technology is currently generating about -0.23 per unit of risk. If you would invest 49,450 in Novatek Microelectronics Corp on October 25, 2024 and sell it today you would earn a total of 2,950 from holding Novatek Microelectronics Corp or generate 5.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novatek Microelectronics Corp vs. Formosa Sumco Technology
Performance |
| Timeline |
| Novatek Microelectronics |
| Formosa Sumco Technology |
Novatek Microelectronics and Formosa Sumco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novatek Microelectronics and Formosa Sumco
The main advantage of trading using opposite Novatek Microelectronics and Formosa Sumco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novatek Microelectronics position performs unexpectedly, Formosa Sumco 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 Formosa Sumco will offset losses from the drop in Formosa Sumco's long position.The idea behind Novatek Microelectronics Corp and Formosa Sumco Technology 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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