Correlation Between Photronics and NVE
Can any of the company-specific risk be diversified away by investing in both Photronics and NVE 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 Photronics and NVE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Photronics and NVE Corporation, you can compare the effects of market volatilities on Photronics and NVE 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 Photronics with a short position of NVE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Photronics and NVE.
Diversification Opportunities for Photronics and NVE
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Photronics and NVE is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Photronics and NVE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVE Corporation and Photronics 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 Photronics are associated (or correlated) with NVE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVE Corporation has no effect on the direction of Photronics i.e., Photronics and NVE go up and down completely randomly.
Pair Corralation between Photronics and NVE
Given the investment horizon of 90 days Photronics is expected to generate 1.3 times less return on investment than NVE. But when comparing it to its historical volatility, Photronics is 1.13 times less risky than NVE. It trades about 0.04 of its potential returns per unit of risk. NVE Corporation is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 7,920 in NVE Corporation on August 27, 2024 and sell it today you would earn a total of 245.00 from holding NVE Corporation or generate 3.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Photronics vs. NVE Corp.
Performance |
| Timeline |
| Photronics |
| NVE Corporation |
Photronics and NVE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Photronics and NVE
The main advantage of trading using opposite Photronics and NVE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Photronics position performs unexpectedly, NVE 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 NVE will offset losses from the drop in NVE's long position.The idea behind Photronics and NVE Corporation 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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