Correlation Between Novatek Microelectronics and Kenmec Mechanical

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

Diversification Opportunities for Novatek Microelectronics and Kenmec Mechanical

0.81

Correlation Coefficient

Novatek Microelectronics  Kenmec Mechanical

Very poor diversification

The 3 months correlation between Novatek and Kenmec is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Kenmec Mechanical Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kenmec Mechanical 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 Kenmec Mechanical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kenmec Mechanical has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Kenmec Mechanical go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Kenmec Mechanical

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.6 times more return on investment than Kenmec Mechanical. However, Novatek Microelectronics Corp is 1.66 times less risky than Kenmec Mechanical. It trades about -0.13 of its potential returns per unit of risk. Kenmec Mechanical Engineering is currently generating about -0.12 per unit of risk. If you would invest  52,300  in Novatek Microelectronics Corp on September 17, 2024 and sell it today you would lose (3,550) from holding Novatek Microelectronics Corp or give up 6.79% of portfolio value over 90 days.

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

Novatek Microelectronics Corp  vs.  Kenmec Mechanical Engineering

Novatek Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novatek Microelectronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Novatek Microelectronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kenmec Mechanical

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Novatek Microelectronics Corp and Kenmec Mechanical Engineering 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.