Correlation Between Photronics and Nova

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

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

Diversification Opportunities for Photronics and Nova

0.04

Correlation Coefficient

Photronics  Nova

Significant diversification

The 3 months correlation between Photronics and Nova is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Photronics and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and Photronics 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 Photronics are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of Photronics i.e., Photronics and Nova go up and down completely randomly.

Pair Corralation between Photronics and Nova

Given the investment horizon of 90 days Photronics is expected to under-perform the Nova. But the stock apears to be less risky and, when comparing its historical volatility, Photronics is 1.93 times less risky than Nova. The stock trades about -0.11 of its potential returns per unit of risk. The Nova is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  19,718  in Nova on December 29, 2024 and sell it today you would lose (1,075) from holding Nova or give up 5.45% of portfolio value over 90 days.

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

Photronics  vs.  Nova

Photronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Photronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Nova

Risk-Adjusted Performance

Very 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.

Pair Trading with Photronics and Nova

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

The idea behind Photronics and Nova 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.