Correlation Between Novatek Microelectronics and Allied Industrial

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

Diversification Opportunities for Novatek Microelectronics and Allied Industrial

-0.51

Correlation Coefficient

Novatek Microelectronics  Allied Industrial

Excellent diversification

The 3 months correlation between Novatek and Allied is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Allied Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Industrial 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 Allied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Industrial has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Allied Industrial go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Allied Industrial

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.8 times more return on investment than Allied Industrial. However, Novatek Microelectronics Corp is 1.25 times less risky than Allied Industrial. It trades about 0.15 of its potential returns per unit of risk. Allied Industrial is currently generating about 0.01 per unit of risk. If you would invest  48,750  in Novatek Microelectronics Corp on December 5, 2024 and sell it today you would earn a total of  5,250  from holding Novatek Microelectronics Corp or generate 10.77% 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.  Allied Industrial

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 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Novatek Microelectronics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Allied Industrial

Risk-Adjusted Performance

Very Weak

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

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

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