Correlation Between Dow Jones and Novatek Microelectronics
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Novatek Microelectronics Corp, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Novatek Microelectronics.
Diversification Opportunities for Dow Jones and Novatek Microelectronics
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Novatek is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Novatek Microelectronics go up and down completely randomly.
Pair Corralation between Dow Jones and Novatek Microelectronics
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.56 times less return on investment than Novatek Microelectronics. But when comparing it to its historical volatility, Dow Jones Industrial is 1.89 times less risky than Novatek Microelectronics. It trades about 0.17 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 48,500 in Novatek Microelectronics Corp on October 20, 2024 and sell it today you would earn a total of 2,100 from holding Novatek Microelectronics Corp or generate 4.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Novatek Microelectronics Corp
Performance |
| Timeline |
Dow Jones and Novatek Microelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Novatek Microelectronics Corp
Pair trading matchups for Novatek Microelectronics
Pair Trading with Dow Jones and Novatek Microelectronics
The main advantage of trading using opposite Dow Jones and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. SkyWest | Dow Jones vs. Air Transport Services | Dow Jones vs. LATAM Airlines Group | Dow Jones vs. Emerson Radio |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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