Correlation Between Napatech and REC Silicon

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

By analyzing existing cross correlation between Napatech AS and REC Silicon ASA, you can compare the effects of market volatilities on Napatech and REC Silicon 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 Napatech with a short position of REC Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Napatech and REC Silicon.

Diversification Opportunities for Napatech and REC Silicon

0.78

Correlation Coefficient

Napatech  REC Silicon

Poor diversification

The 3 months correlation between Napatech and REC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Napatech AS and REC Silicon ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REC Silicon ASA and Napatech 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 Napatech AS are associated (or correlated) with REC Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REC Silicon ASA has no effect on the direction of Napatech i.e., Napatech and REC Silicon go up and down completely randomly.

Pair Corralation between Napatech and REC Silicon

Assuming the 90 days trading horizon Napatech AS is expected to under-perform the REC Silicon. But the stock apears to be less risky and, when comparing its historical volatility, Napatech AS is 3.37 times less risky than REC Silicon. The stock trades about -0.2 of its potential returns per unit of risk. The REC Silicon ASA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  630.00  in REC Silicon ASA on September 13, 2024 and sell it today you would lose (47.00) from holding REC Silicon ASA or give up 7.46% of portfolio value over 90 days.

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

Napatech AS  vs.  REC Silicon ASA

Napatech AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Napatech AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

REC Silicon ASA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in REC Silicon ASA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, REC Silicon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Napatech and REC Silicon

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

The idea behind Napatech AS and REC Silicon ASA 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.