Correlation Between Cheng Mei and Novatek Microelectronics
Can any of the company-specific risk be diversified away by investing in both Cheng Mei and Novatek Microelectronics 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 Cheng Mei and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cheng Mei Materials and Novatek Microelectronics Corp, you can compare the effects of market volatilities on Cheng Mei and Novatek Microelectronics 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 Cheng Mei with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheng Mei and Novatek Microelectronics.
Diversification Opportunities for Cheng Mei and Novatek Microelectronics
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cheng and Novatek is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cheng Mei Materials and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Cheng Mei 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 Cheng Mei Materials are associated (or correlated) with Novatek Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatek Microelectronics has no effect on the direction of Cheng Mei i.e., Cheng Mei and Novatek Microelectronics go up and down completely randomly.
Pair Corralation between Cheng Mei and Novatek Microelectronics
Assuming the 90 days trading horizon Cheng Mei Materials is expected to generate 0.81 times more return on investment than Novatek Microelectronics. However, Cheng Mei Materials is 1.23 times less risky than Novatek Microelectronics. It trades about 0.04 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.0 per unit of risk. If you would invest 1,330 in Cheng Mei Materials on November 2, 2024 and sell it today you would earn a total of 55.00 from holding Cheng Mei Materials or generate 4.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cheng Mei Materials vs. Novatek Microelectronics Corp
Performance |
| Timeline |
| Cheng Mei Materials |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
| Novatek Microelectronics |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Modest
Cheng Mei and Novatek Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cheng Mei and Novatek Microelectronics
The main advantage of trading using opposite Cheng Mei and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheng Mei position performs unexpectedly, Novatek Microelectronics 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 Novatek Microelectronics will offset losses from the drop in Novatek Microelectronics' long position.The idea behind Cheng Mei Materials and Novatek Microelectronics 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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