Correlation Between Leader Electronics and Nova Technology

Can any of the company-specific risk be diversified away by investing in both Leader Electronics and Nova Technology 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 Leader Electronics and Nova Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Leader Electronics and Nova Technology, you can compare the effects of market volatilities on Leader Electronics and Nova Technology 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 Leader Electronics with a short position of Nova Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leader Electronics and Nova Technology.

Diversification Opportunities for Leader Electronics and Nova Technology

-0.71

Correlation Coefficient

Leader Electronics  Nova Technology

Pay attention - limited upside

The 3 months correlation between Leader and Nova is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Leader Electronics and Nova Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Technology and Leader Electronics 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 Leader Electronics are associated (or correlated) with Nova Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Technology has no effect on the direction of Leader Electronics i.e., Leader Electronics and Nova Technology go up and down completely randomly.

Pair Corralation between Leader Electronics and Nova Technology

Assuming the 90 days trading horizon Leader Electronics is expected to under-perform the Nova Technology. In addition to that, Leader Electronics is 1.19 times more volatile than Nova Technology. It trades about -0.24 of its total potential returns per unit of risk. Nova Technology is currently generating about -0.09 per unit of volatility. If you would invest  19,400  in Nova Technology on September 16, 2024 and sell it today you would lose (500.00) from holding Nova Technology or give up 2.58% of portfolio value over 90 days.

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

Leader Electronics  vs.  Nova Technology

Leader Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leader Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Nova Technology

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Technology are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nova Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leader Electronics and Nova Technology

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

The idea behind Leader Electronics and Nova Technology 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.