Correlation Between Novatek Microelectronics and Giant Manufacturing

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

Diversification Opportunities for Novatek Microelectronics and Giant Manufacturing

0.53

Correlation Coefficient

Novatek Microelectronics  Giant Manufacturing

Very weak diversification

The 3 months correlation between Novatek and Giant is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Giant Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Giant Manufacturing 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 Giant Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Giant Manufacturing has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Giant Manufacturing go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Giant Manufacturing

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 0.54 times more return on investment than Giant Manufacturing. However, Novatek Microelectronics Corp is 1.85 times less risky than Giant Manufacturing. It trades about 0.17 of its potential returns per unit of risk. Giant Manufacturing Co is currently generating about 0.02 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Novatek Microelectronics Corp  vs.  Giant Manufacturing 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.

Giant Manufacturing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Giant Manufacturing Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Giant Manufacturing 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 Giant Manufacturing

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

The idea behind Novatek Microelectronics Corp and Giant Manufacturing 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.