Correlation Between Novatek Microelectronics and Basso Industry

Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Basso Industry 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 Basso Industry 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 Basso Industry Corp, you can compare the effects of market volatilities on Novatek Microelectronics and Basso Industry 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 Basso Industry. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Basso Industry.

Diversification Opportunities for Novatek Microelectronics and Basso Industry

0.1

Correlation Coefficient

Novatek Microelectronics  Basso Industry

Average diversification

The 3 months correlation between Novatek and Basso is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Basso Industry Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basso Industry Corp 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 Basso Industry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basso Industry Corp has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Basso Industry go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Basso Industry

Assuming the 90 days trading horizon Novatek Microelectronics is expected to generate 5.16 times less return on investment than Basso Industry. In addition to that, Novatek Microelectronics is 1.25 times more volatile than Basso Industry Corp. It trades about 0.07 of its total potential returns per unit of risk. Basso Industry Corp is currently generating about 0.44 per unit of volatility. If you would invest  4,155  in Basso Industry Corp on December 4, 2024 and sell it today you would earn a total of  260.00  from holding Basso Industry Corp or generate 6.26% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Basso Industry Corp

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 12 (%) 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.

Basso Industry Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Basso Industry Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Basso Industry 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 Basso Industry

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

The idea behind Novatek Microelectronics Corp and Basso Industry 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.