Correlation Between Microfriend and NOVATECH

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

By analyzing existing cross correlation between Microfriend and NOVATECH Co, you can compare the effects of market volatilities on Microfriend and NOVATECH 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 Microfriend with a short position of NOVATECH. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microfriend and NOVATECH.

Diversification Opportunities for Microfriend and NOVATECH

-0.5

Correlation Coefficient

Microfriend  NOVATECH

Very good diversification

The 3 months correlation between Microfriend and NOVATECH is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and NOVATECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVATECH and Microfriend 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 Microfriend are associated (or correlated) with NOVATECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVATECH has no effect on the direction of Microfriend i.e., Microfriend and NOVATECH go up and down completely randomly.

Pair Corralation between Microfriend and NOVATECH

Assuming the 90 days trading horizon Microfriend is expected to under-perform the NOVATECH. But the stock apears to be less risky and, when comparing its historical volatility, Microfriend is 1.09 times less risky than NOVATECH. The stock trades about -0.05 of its potential returns per unit of risk. The NOVATECH Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,575,000  in NOVATECH Co on October 20, 2024 and sell it today you would earn a total of  175,000  from holding NOVATECH Co or generate 11.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Microfriend  vs.  NOVATECH Co

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

NOVATECH

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NOVATECH Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NOVATECH sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Microfriend and NOVATECH

The main advantage of trading using opposite Microfriend and NOVATECH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microfriend position performs unexpectedly, NOVATECH 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 NOVATECH will offset losses from the drop in NOVATECH's long position.

The idea behind Microfriend and NOVATECH Co 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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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 CEOs Directory module to screen CEOs from public companies around the world.