Correlation Between Novatek Microelectronics and Taiwan Semiconductor

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

Diversification Opportunities for Novatek Microelectronics and Taiwan Semiconductor

-0.04

Correlation Coefficient

Novatek Microelectronics  Taiwan Semiconductor

Good diversification

The 3 months correlation between Novatek and Taiwan is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Taiwan Semiconductor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor 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 Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Taiwan Semiconductor

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.64 times more return on investment than Taiwan Semiconductor. However, Novatek Microelectronics Corp is 1.56 times less risky than Taiwan Semiconductor. It trades about 0.17 of its potential returns per unit of risk. Taiwan Semiconductor Co is currently generating about -0.06 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Novatek Microelectronics Corp  vs.  Taiwan Semiconductor 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.

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Co 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 Taiwan Semiconductor

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

The idea behind Novatek Microelectronics Corp and Taiwan Semiconductor 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.