Correlation Between Novatek Microelectronics and Honmyue Enterprise

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

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

Diversification Opportunities for Novatek Microelectronics and Honmyue Enterprise

-0.41

Correlation Coefficient

Novatek Microelectronics  Honmyue Enterprise

Very good diversification

The 3 months correlation between Novatek and Honmyue is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Honmyue Enterprise Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honmyue Enterprise and Novatek Microelectronics 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 Novatek Microelectronics Corp are associated (or correlated) with Honmyue Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honmyue Enterprise has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Honmyue Enterprise go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Honmyue Enterprise

Assuming the 90 days trading horizon Novatek Microelectronics is expected to generate 3.31 times less return on investment than Honmyue Enterprise. But when comparing it to its historical volatility, Novatek Microelectronics Corp is 2.4 times less risky than Honmyue Enterprise. It trades about 0.13 of its potential returns per unit of risk. Honmyue Enterprise Co is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,245  in Honmyue Enterprise Co on December 2, 2024 and sell it today you would earn a total of  85.00  from holding Honmyue Enterprise Co or generate 6.83% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Honmyue Enterprise Co

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.

Honmyue Enterprise

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Honmyue Enterprise Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Honmyue Enterprise is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Novatek Microelectronics and Honmyue Enterprise

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

The idea behind Novatek Microelectronics Corp and Honmyue Enterprise 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.