Correlation Between NLIGHT and CEVA

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

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

Diversification Opportunities for NLIGHT and CEVA

0.47

Correlation Coefficient

NLIGHT  CEVA

Very weak diversification

The 3 months correlation between NLIGHT and CEVA is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding nLIGHT Inc and CEVA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEVA Inc and NLIGHT 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 nLIGHT Inc are associated (or correlated) with CEVA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEVA Inc has no effect on the direction of NLIGHT i.e., NLIGHT and CEVA go up and down completely randomly.

Pair Corralation between NLIGHT and CEVA

Given the investment horizon of 90 days nLIGHT Inc is expected to generate 0.89 times more return on investment than CEVA. However, nLIGHT Inc is 1.13 times less risky than CEVA. It trades about 0.44 of its potential returns per unit of risk. CEVA Inc is currently generating about 0.01 per unit of risk. If you would invest  1,095  in nLIGHT Inc on February 23, 2024 and sell it today you would earn a total of  209.00  from holding nLIGHT Inc or generate 19.09% return on investment over 90 days.

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

nLIGHT Inc  vs.  CEVA Inc

nLIGHT Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in nLIGHT Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, NLIGHT may actually be approaching a critical reversion point that can send shares even higher in June 2024.

CEVA Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CEVA Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with NLIGHT and CEVA

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

The idea behind nLIGHT Inc and CEVA Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.