Correlation Between Novatek Microelectronics and Lan Fa

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

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

Diversification Opportunities for Novatek Microelectronics and Lan Fa

0.57

Correlation Coefficient

Novatek Microelectronics  Lan Fa

Very weak diversification

The 3 months correlation between Novatek and Lan is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Lan Fa Textile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lan Fa Textile and Novatek Microelectronics 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 Novatek Microelectronics Corp are associated (or correlated) with Lan Fa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lan Fa Textile has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Lan Fa go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Lan Fa

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to under-perform the Lan Fa. In addition to that, Novatek Microelectronics is 2.15 times more volatile than Lan Fa Textile. It trades about -0.09 of its total potential returns per unit of risk. Lan Fa Textile is currently generating about -0.08 per unit of volatility. If you would invest  1,010  in Lan Fa Textile on September 15, 2024 and sell it today you would lose (35.00) from holding Lan Fa Textile or give up 3.47% of portfolio value over 90 days.

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

Novatek Microelectronics Corp  vs.  Lan Fa Textile

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.

Lan Fa Textile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lan Fa Textile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Lan Fa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Novatek Microelectronics and Lan Fa

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

The idea behind Novatek Microelectronics Corp and Lan Fa Textile 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.