Correlation Between Sunplus Technology and Novatek Microelectronics

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

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

Diversification Opportunities for Sunplus Technology and Novatek Microelectronics

0.45

Correlation Coefficient

Sunplus Technology  Novatek Microelectronics

Very weak diversification

The 3 months correlation between Sunplus and Novatek is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sunplus Technology Co and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Sunplus Technology 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 Sunplus Technology Co 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 Sunplus Technology i.e., Sunplus Technology and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between Sunplus Technology and Novatek Microelectronics

Assuming the 90 days trading horizon Sunplus Technology is expected to generate 28.8 times less return on investment than Novatek Microelectronics. In addition to that, Sunplus Technology is 2.09 times more volatile than Novatek Microelectronics Corp. It trades about 0.0 of its total potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.19 per unit of volatility. If you would invest  47,950  in Novatek Microelectronics Corp on December 3, 2024 and sell it today you would earn a total of  6,750  from holding Novatek Microelectronics Corp or generate 14.08% return on investment over 90 days.

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

Sunplus Technology Co  vs.  Novatek Microelectronics Corp

Sunplus Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sunplus Technology Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Sunplus Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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 15 (%) 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 Sunplus Technology and Novatek Microelectronics

The main advantage of trading using opposite Sunplus Technology and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunplus Technology 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 Sunplus Technology Co 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.