Correlation Between Novatek Microelectronics and Optimax Technology

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

Diversification Opportunities for Novatek Microelectronics and Optimax Technology

-0.68

Correlation Coefficient

Novatek Microelectronics  Optimax Technology

Excellent diversification

The 3 months correlation between Novatek and Optimax is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Optimax Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimax Technology 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 Optimax Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimax Technology Corp has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Optimax Technology go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Optimax Technology

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.68 times more return on investment than Optimax Technology. However, Novatek Microelectronics Corp is 1.48 times less risky than Optimax Technology. It trades about 0.17 of its potential returns per unit of risk. Optimax Technology Corp is currently generating about -0.07 per unit of risk. If you would invest  50,000  in Novatek Microelectronics Corp on December 30, 2024 and sell it today you would earn a total of  6,000  from holding Novatek Microelectronics Corp or generate 12.0% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Optimax Technology 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.

Optimax Technology Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optimax Technology Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Novatek Microelectronics and Optimax Technology

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

The idea behind Novatek Microelectronics Corp and Optimax Technology 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.