Correlation Between Lemtech Holdings and Novatek Microelectronics

Can any of the company-specific risk be diversified away by investing in both Lemtech Holdings and Novatek Microelectronics 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 Lemtech Holdings and Novatek Microelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lemtech Holdings Co and Novatek Microelectronics Corp, you can compare the effects of market volatilities on Lemtech Holdings and Novatek Microelectronics 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 Lemtech Holdings with a short position of Novatek Microelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lemtech Holdings and Novatek Microelectronics.

Diversification Opportunities for Lemtech Holdings and Novatek Microelectronics

-0.12

Correlation Coefficient

Lemtech Holdings  Novatek Microelectronics

Good diversification

The 3 months correlation between Lemtech and Novatek is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Lemtech Holdings Co and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Lemtech Holdings 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 Lemtech Holdings Co are associated (or correlated) with Novatek Microelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatek Microelectronics has no effect on the direction of Lemtech Holdings i.e., Lemtech Holdings and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between Lemtech Holdings and Novatek Microelectronics

Assuming the 90 days trading horizon Lemtech Holdings is expected to generate 1.7 times less return on investment than Novatek Microelectronics. In addition to that, Lemtech Holdings is 3.24 times more volatile than Novatek Microelectronics Corp. It trades about 0.03 of its total potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.18 per unit of volatility. If you would invest  48,400  in Novatek Microelectronics Corp on December 4, 2024 and sell it today you would earn a total of  6,300  from holding Novatek Microelectronics Corp or generate 13.02% return on investment over 90 days.

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

Lemtech Holdings Co  vs.  Novatek Microelectronics Corp

Lemtech Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lemtech Holdings Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lemtech Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 14 (%) 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.

Pair Trading with Lemtech Holdings and Novatek Microelectronics

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

The idea behind Lemtech Holdings Co and Novatek Microelectronics Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.