Correlation Between Novatek Microelectronics and Holiday Entertainment

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

Diversification Opportunities for Novatek Microelectronics and Holiday Entertainment

0.63

Correlation Coefficient

Novatek Microelectronics  Holiday Entertainment

Poor diversification

The 3 months correlation between Novatek and Holiday is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Holiday Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Entertainment 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 Holiday Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Entertainment has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Holiday Entertainment go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Holiday Entertainment

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to generate 2.12 times more return on investment than Holiday Entertainment. However, Novatek Microelectronics is 2.12 times more volatile than Holiday Entertainment Co. It trades about 0.17 of its potential returns per unit of risk. Holiday Entertainment Co is currently generating about 0.05 per unit of risk. If you would invest  50,200  in Novatek Microelectronics Corp on December 31, 2024 and sell it today you would earn a total of  5,800  from holding Novatek Microelectronics Corp or generate 11.55% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Holiday Entertainment 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.

Holiday Entertainment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Holiday Entertainment Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Holiday Entertainment is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Novatek Microelectronics and Holiday Entertainment

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

The idea behind Novatek Microelectronics Corp and Holiday Entertainment 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.