Correlation Between Electra Battery and Nova Leap

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

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

Diversification Opportunities for Electra Battery and Nova Leap

0.21

Correlation Coefficient

Electra Battery  Nova Leap

Modest diversification

The 3 months correlation between Electra and Nova is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials and Nova Leap Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Leap Health and Electra Battery 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 Electra Battery Materials are associated (or correlated) with Nova Leap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Leap Health has no effect on the direction of Electra Battery i.e., Electra Battery and Nova Leap go up and down completely randomly.

Pair Corralation between Electra Battery and Nova Leap

Assuming the 90 days trading horizon Electra Battery Materials is expected to generate 1.24 times more return on investment than Nova Leap. However, Electra Battery is 1.24 times more volatile than Nova Leap Health. It trades about 0.08 of its potential returns per unit of risk. Nova Leap Health is currently generating about -0.02 per unit of risk. If you would invest  218.00  in Electra Battery Materials on December 1, 2024 and sell it today you would earn a total of  16.00  from holding Electra Battery Materials or generate 7.34% return on investment over 90 days.

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

Electra Battery Materials  vs.  Nova Leap Health

Electra Battery Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electra Battery Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental drivers, Electra Battery showed solid returns over the last few months and may actually be approaching a breakup point.

Nova Leap Health

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Electra Battery and Nova Leap

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

The idea behind Electra Battery Materials and Nova Leap Health 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.