Correlation Between Great Wall and Novatek Microelectronics

Can any of the company-specific risk be diversified away by investing in both Great Wall 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 Great Wall and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Great Wall Enterprise and Novatek Microelectronics Corp, you can compare the effects of market volatilities on Great Wall 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 Great Wall with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Wall and Novatek Microelectronics.

Diversification Opportunities for Great Wall and Novatek Microelectronics

0.84

Correlation Coefficient

Great Wall  Novatek Microelectronics

Very poor diversification

The 3 months correlation between Great and Novatek is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Great Wall Enterprise and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Great Wall 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 Great Wall Enterprise 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 Great Wall i.e., Great Wall and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between Great Wall and Novatek Microelectronics

Assuming the 90 days trading horizon Great Wall is expected to generate 1.01 times less return on investment than Novatek Microelectronics. But when comparing it to its historical volatility, Great Wall Enterprise is 1.49 times less risky than Novatek Microelectronics. It trades about 0.26 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  50,000  in Novatek Microelectronics Corp on December 30, 2024 and sell it today you would earn a total of  6,000  from holding Novatek Microelectronics Corp or generate 12.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Great Wall Enterprise  vs.  Novatek Microelectronics Corp

Great Wall Enterprise

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Great Wall Enterprise are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Great Wall showed solid returns over the last few months and may actually be approaching a breakup point.

Novatek Microelectronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novatek Microelectronics Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Novatek Microelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Wall and Novatek Microelectronics

The main advantage of trading using opposite Great Wall and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Wall 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 Great Wall Enterprise 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.