Correlation Between Nova and Lam Research

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

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

Diversification Opportunities for Nova and Lam Research

0.85

Correlation Coefficient

Nova  Lam Research

Very poor diversification

The 3 months correlation between Nova and Lam is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nova and Lam Research Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research Corp and Nova 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 Nova are associated (or correlated) with Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research Corp has no effect on the direction of Nova i.e., Nova and Lam Research go up and down completely randomly.

Pair Corralation between Nova and Lam Research

Given the investment horizon of 90 days Nova is expected to generate 2.76 times less return on investment than Lam Research. In addition to that, Nova is 1.29 times more volatile than Lam Research Corp. It trades about 0.01 of its total potential returns per unit of risk. Lam Research Corp is currently generating about 0.03 per unit of volatility. If you would invest  7,377  in Lam Research Corp on December 26, 2024 and sell it today you would earn a total of  237.00  from holding Lam Research Corp or generate 3.21% return on investment over 90 days.

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

Nova  vs.  Lam Research Corp

Nova

Risk-Adjusted Performance

Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Nova is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Lam Research Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Lam Research is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nova and Lam Research

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

The idea behind Nova and Lam Research 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.