Correlation Between Novatek Microelectronics and Elan Microelectronics

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

Diversification Opportunities for Novatek Microelectronics and Elan Microelectronics

0.7

Correlation Coefficient

Novatek Microelectronics  Elan Microelectronics

Poor diversification

The 3 months correlation between Novatek and Elan is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Elan Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elan Microelectronics 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 Elan Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elan Microelectronics has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Elan Microelectronics go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Elan Microelectronics

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.74 times more return on investment than Elan Microelectronics. However, Novatek Microelectronics Corp is 1.35 times less risky than Elan Microelectronics. It trades about 0.17 of its potential returns per unit of risk. Elan Microelectronics Corp is currently generating about -0.02 per unit of risk. If you would invest  50,200  in Novatek Microelectronics Corp on December 27, 2024 and sell it today you would earn a total of  5,900  from holding Novatek Microelectronics Corp or generate 11.75% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Elan Microelectronics 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 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.

Elan Microelectronics

Risk-Adjusted Performance

Weak

Over the last 90 days Elan Microelectronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Elan Microelectronics 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 Elan Microelectronics

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

The idea behind Novatek Microelectronics Corp and Elan 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.