Correlation Between Holy Stone and Novatek Microelectronics

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

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

Diversification Opportunities for Holy Stone and Novatek Microelectronics

0.04

Correlation Coefficient

Holy Stone  Novatek Microelectronics

Significant diversification

The 3 months correlation between Holy and Novatek is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Holy Stone Enterprise and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and Holy Stone 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 Holy Stone Enterprise 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 Holy Stone i.e., Holy Stone and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between Holy Stone and Novatek Microelectronics

Assuming the 90 days trading horizon Holy Stone Enterprise is expected to generate 0.37 times more return on investment than Novatek Microelectronics. However, Holy Stone Enterprise is 2.69 times less risky than Novatek Microelectronics. It trades about 0.06 of its potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about -0.08 per unit of risk. If you would invest  8,780  in Holy Stone Enterprise on September 5, 2024 and sell it today you would earn a total of  170.00  from holding Holy Stone Enterprise or generate 1.94% return on investment over 90 days.

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

Holy Stone Enterprise  vs.  Novatek Microelectronics Corp

Holy Stone Enterprise

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Holy Stone Enterprise are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Holy Stone is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Novatek Microelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novatek Microelectronics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Holy Stone and Novatek Microelectronics

The main advantage of trading using opposite Holy Stone and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Holy Stone 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 Holy Stone Enterprise 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.