Correlation Between ESUN Financial and Nova Technology

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

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

Diversification Opportunities for ESUN Financial and Nova Technology

-0.58

Correlation Coefficient

ESUN Financial  Nova Technology

Excellent diversification

The 3 months correlation between ESUN and Nova is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding ESUN Financial Holding and Nova Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Technology and ESUN Financial 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 ESUN Financial Holding are associated (or correlated) with Nova Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Technology has no effect on the direction of ESUN Financial i.e., ESUN Financial and Nova Technology go up and down completely randomly.

Pair Corralation between ESUN Financial and Nova Technology

Assuming the 90 days trading horizon ESUN Financial Holding is expected to generate 0.74 times more return on investment than Nova Technology. However, ESUN Financial Holding is 1.35 times less risky than Nova Technology. It trades about -0.07 of its potential returns per unit of risk. Nova Technology is currently generating about -0.23 per unit of risk. If you would invest  2,755  in ESUN Financial Holding on October 9, 2024 and sell it today you would lose (30.00) from holding ESUN Financial Holding or give up 1.09% of portfolio value over 90 days.

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

ESUN Financial Holding  vs.  Nova Technology

ESUN Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESUN Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ESUN Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Nova Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nova Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ESUN Financial and Nova Technology

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

The idea behind ESUN Financial Holding and Nova Technology 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.