Correlation Between NVE and Power Integrations

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

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

Diversification Opportunities for NVE and Power Integrations

0.64

Correlation Coefficient

NVE  Power Integrations

Poor diversification

The 3 months correlation between NVE and Power is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NVE Corp. and Power Integrations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Integrations and NVE 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 NVE Corporation are associated (or correlated) with Power Integrations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Integrations has no effect on the direction of NVE i.e., NVE and Power Integrations go up and down completely randomly.

Pair Corralation between NVE and Power Integrations

Given the investment horizon of 90 days NVE Corporation is expected to under-perform the Power Integrations. But the stock apears to be less risky and, when comparing its historical volatility, NVE Corporation is 1.02 times less risky than Power Integrations. The stock trades about -0.11 of its potential returns per unit of risk. The Power Integrations is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  6,278  in Power Integrations on December 27, 2024 and sell it today you would lose (743.00) from holding Power Integrations or give up 11.83% of portfolio value over 90 days.

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

NVE Corp.  vs.  Power Integrations

NVE Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVE Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Power Integrations

Risk-Adjusted Performance

Very Weak

Over the last 90 days Power Integrations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with NVE and Power Integrations

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

The idea behind NVE Corporation and Power Integrations 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.