Correlation Between CSL and Nova Mentis

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

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

Diversification Opportunities for CSL and Nova Mentis

0.45

Correlation Coefficient

CSL  Nova Mentis

Very weak diversification

The 3 months correlation between CSL and Nova is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding CSL Limited and Nova Mentis Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Mentis Life and CSL 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 CSL Limited are associated (or correlated) with Nova Mentis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Mentis Life has no effect on the direction of CSL i.e., CSL and Nova Mentis go up and down completely randomly.

Pair Corralation between CSL and Nova Mentis

Assuming the 90 days horizon CSL is expected to generate 16.4 times less return on investment than Nova Mentis. But when comparing it to its historical volatility, CSL Limited is 10.0 times less risky than Nova Mentis. It trades about 0.07 of its potential returns per unit of risk. Nova Mentis Life is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2.05  in Nova Mentis Life on October 13, 2024 and sell it today you would earn a total of  0.20  from holding Nova Mentis Life or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

CSL Limited  vs.  Nova Mentis Life

CSL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Nova Mentis Life

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Mentis Life are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nova Mentis reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CSL and Nova Mentis

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

The idea behind CSL Limited and Nova Mentis Life 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.