Correlation Between Sinopower Semiconductor and Novatek Microelectronics

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

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

Diversification Opportunities for Sinopower Semiconductor and Novatek Microelectronics

0.84

Correlation Coefficient

Sinopower Semiconductor  Novatek Microelectronics

Very poor diversification

The 3 months correlation between Sinopower and Novatek is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sinopower Semiconductor and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Sinopower Semiconductor 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 Sinopower Semiconductor 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 Sinopower Semiconductor i.e., Sinopower Semiconductor and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between Sinopower Semiconductor and Novatek Microelectronics

Assuming the 90 days trading horizon Sinopower Semiconductor is expected to generate 1.74 times more return on investment than Novatek Microelectronics. However, Sinopower Semiconductor is 1.74 times more volatile than Novatek Microelectronics Corp. It trades about 0.21 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about 0.17 per unit of risk. If you would invest  9,300  in Sinopower Semiconductor on December 25, 2024 and sell it today you would earn a total of  2,450  from holding Sinopower Semiconductor or generate 26.34% return on investment over 90 days.

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

Sinopower Semiconductor  vs.  Novatek Microelectronics Corp

Sinopower Semiconductor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sinopower Semiconductor are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Sinopower Semiconductor showed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Sinopower Semiconductor and Novatek Microelectronics

The main advantage of trading using opposite Sinopower Semiconductor and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sinopower Semiconductor 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 Sinopower Semiconductor 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.