Correlation Between GlobalWafers and Novatek Microelectronics

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

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

Diversification Opportunities for GlobalWafers and Novatek Microelectronics

0.76

Correlation Coefficient

GlobalWafers  Novatek Microelectronics

Poor diversification

The 3 months correlation between GlobalWafers and Novatek is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding GlobalWafers Co and Novatek Microelectronics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatek Microelectronics and GlobalWafers 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 GlobalWafers Co 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 GlobalWafers i.e., GlobalWafers and Novatek Microelectronics go up and down completely randomly.

Pair Corralation between GlobalWafers and Novatek Microelectronics

Assuming the 90 days trading horizon GlobalWafers Co is expected to under-perform the Novatek Microelectronics. In addition to that, GlobalWafers is 1.08 times more volatile than Novatek Microelectronics Corp. It trades about -0.15 of its total potential returns per unit of risk. Novatek Microelectronics Corp is currently generating about -0.11 per unit of volatility. If you would invest  54,000  in Novatek Microelectronics Corp on August 31, 2024 and sell it today you would lose (5,700) from holding Novatek Microelectronics Corp or give up 10.56% of portfolio value over 90 days.

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

GlobalWafers Co  vs.  Novatek Microelectronics Corp

GlobalWafers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GlobalWafers Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture 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 GlobalWafers and Novatek Microelectronics

The main advantage of trading using opposite GlobalWafers and Novatek Microelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlobalWafers 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 GlobalWafers Co 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 Transaction History module to view history of all your transactions and understand their impact on performance.