Correlation Between Novatek Microelectronics and Greatek Electronics

Can any of the company-specific risk be diversified away by investing in both Novatek Microelectronics and Greatek Electronics 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 Greatek Electronics 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 Greatek Electronics, you can compare the effects of market volatilities on Novatek Microelectronics and Greatek Electronics 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 Greatek Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novatek Microelectronics and Greatek Electronics.

Diversification Opportunities for Novatek Microelectronics and Greatek Electronics

0.48

Correlation Coefficient

Novatek Microelectronics  Greatek Electronics

Very weak diversification

The 3 months correlation between Novatek and Greatek is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Greatek Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greatek Electronics 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 Greatek Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greatek Electronics has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Greatek Electronics go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Greatek Electronics

Assuming the 90 days trading horizon Novatek Microelectronics is expected to generate 8.39 times less return on investment than Greatek Electronics. In addition to that, Novatek Microelectronics is 1.08 times more volatile than Greatek Electronics. It trades about 0.01 of its total potential returns per unit of risk. Greatek Electronics is currently generating about 0.08 per unit of volatility. If you would invest  5,610  in Greatek Electronics on September 13, 2024 and sell it today you would earn a total of  110.00  from holding Greatek Electronics or generate 1.96% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Greatek Electronics

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.

Greatek Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Greatek Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Greatek Electronics 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 Greatek Electronics

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

The idea behind Novatek Microelectronics Corp and Greatek Electronics 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.