Correlation Between Novatek Microelectronics and Lotes

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

Diversification Opportunities for Novatek Microelectronics and Lotes

-0.64

Correlation Coefficient

Novatek Microelectronics  Lotes

Excellent diversification

The 3 months correlation between Novatek and Lotes is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Novatek Microelectronics Corp and Lotes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotes 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 Lotes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotes has no effect on the direction of Novatek Microelectronics i.e., Novatek Microelectronics and Lotes go up and down completely randomly.

Pair Corralation between Novatek Microelectronics and Lotes

Assuming the 90 days trading horizon Novatek Microelectronics Corp is expected to under-perform the Lotes. But the stock apears to be less risky and, when comparing its historical volatility, Novatek Microelectronics Corp is 2.42 times less risky than Lotes. The stock trades about -0.09 of its potential returns per unit of risk. The Lotes Co is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  139,000  in Lotes Co on September 21, 2024 and sell it today you would earn a total of  52,000  from holding Lotes Co or generate 37.41% return on investment over 90 days.

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

Novatek Microelectronics Corp  vs.  Lotes Co

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.

Lotes

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lotes Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lotes showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novatek Microelectronics and Lotes

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

The idea behind Novatek Microelectronics Corp and Lotes Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.