Correlation Between Novatek Microelectronics and Jinli Group

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

Diversification Opportunities for Novatek Microelectronics and Jinli Group

-0.64

Correlation Coefficient

Novatek Microelectronics  Jinli Group

Excellent diversification

The 3 months correlation between Novatek and Jinli is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Jinli Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jinli Group Holdings 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 Jinli Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jinli Group Holdings has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Jinli Group go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Jinli Group

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 1.04 times more return on investment than Jinli Group. However, Novatek Microelectronics is 1.04 times more volatile than Jinli Group Holdings. It trades about 0.06 of its potential returns per unit of risk. Jinli Group Holdings is currently generating about 0.02 per unit of risk. If you would invest  31,550  in Novatek Microelectronics Corp on September 20, 2024 and sell it today you would earn a total of  17,650  from holding Novatek Microelectronics Corp or generate 55.94% 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.  Jinli Group Holdings

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.

Jinli Group Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jinli Group Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Jinli Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novatek Microelectronics and Jinli Group

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

The idea behind Novatek Microelectronics Corp and Jinli Group Holdings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.