Correlation Between AXT and Nova

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

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

Diversification Opportunities for AXT and Nova

0.38

Correlation Coefficient

AXT  Nova

Weak diversification

The 3 months correlation between AXT and Nova is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding AXT Inc and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and AXT 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 AXT Inc are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of AXT i.e., AXT and Nova go up and down completely randomly.

Pair Corralation between AXT and Nova

Given the investment horizon of 90 days AXT Inc is expected to generate 1.96 times more return on investment than Nova. However, AXT is 1.96 times more volatile than Nova. It trades about 0.15 of its potential returns per unit of risk. Nova is currently generating about 0.15 per unit of risk. If you would invest  191.00  in AXT Inc on September 22, 2024 and sell it today you would earn a total of  27.00  from holding AXT Inc or generate 14.14% return on investment over 90 days.

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

AXT Inc  vs.  Nova

AXT Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AXT Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, AXT demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Nova

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Nova is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with AXT and Nova

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

The idea behind AXT Inc and Nova 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.