Correlation Between CHINA DEVELOPMENT and Novatek Microelectronics

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

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

Diversification Opportunities for CHINA DEVELOPMENT and Novatek Microelectronics

0.93

Correlation Coefficient

CHINA DEVELOPMENT  Novatek Microelectronics

Almost no diversification

The 3 months correlation between CHINA and Novatek is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding CHINA DEVELOPMENT FINANCIAL and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and CHINA DEVELOPMENT 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 CHINA DEVELOPMENT FINANCIAL 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 CHINA DEVELOPMENT i.e., CHINA DEVELOPMENT and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between CHINA DEVELOPMENT and Novatek Microelectronics

Assuming the 90 days trading horizon CHINA DEVELOPMENT is expected to generate 4.81 times less return on investment than Novatek Microelectronics. But when comparing it to its historical volatility, CHINA DEVELOPMENT FINANCIAL is 7.68 times less risky than Novatek Microelectronics. It trades about 0.3 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. 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	Very Strong
Accuracy	98.25%
Values	Daily Returns

CHINA DEVELOPMENT FINANCIAL  vs.  Novatek Microelectronics Corp

CHINA DEVELOPMENT

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA DEVELOPMENT FINANCIAL are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CHINA DEVELOPMENT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private 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 CHINA DEVELOPMENT and Novatek Microelectronics

The main advantage of trading using opposite CHINA DEVELOPMENT and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA DEVELOPMENT 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 CHINA DEVELOPMENT FINANCIAL 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.