Correlation Between Nova and ASE Industrial

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

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

Diversification Opportunities for Nova and ASE Industrial

0.78

Correlation Coefficient

Nova  ASE Industrial

Poor diversification

The 3 months correlation between Nova and ASE is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Nova and ASE Industrial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASE Industrial Holding and Nova 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 Nova are associated (or correlated) with ASE Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASE Industrial Holding has no effect on the direction of Nova i.e., Nova and ASE Industrial go up and down completely randomly.

Pair Corralation between Nova and ASE Industrial

Given the investment horizon of 90 days Nova is expected to generate 1.35 times more return on investment than ASE Industrial. However, Nova is 1.35 times more volatile than ASE Industrial Holding. It trades about -0.04 of its potential returns per unit of risk. ASE Industrial Holding is currently generating about -0.21 per unit of risk. If you would invest  17,893  in Nova on February 3, 2024 and sell it today you would lose (471.00) from holding Nova or give up 2.63% of portfolio value over 90 days.

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

Nova  vs.  ASE Industrial Holding

Nova

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain primary indicators, Nova demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ASE Industrial Holding

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASE Industrial Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, ASE Industrial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova and ASE Industrial

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

The idea behind Nova and ASE Industrial Holding 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.