Correlation Between EMCOR and Nova Lithium

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

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

Diversification Opportunities for EMCOR and Nova Lithium

0.84

Correlation Coefficient

EMCOR  Nova Lithium

Very poor diversification

The 3 months correlation between EMCOR and Nova is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Nova Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Lithium Corp and EMCOR 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 EMCOR Group are associated (or correlated) with Nova Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Lithium Corp has no effect on the direction of EMCOR i.e., EMCOR and Nova Lithium go up and down completely randomly.

Pair Corralation between EMCOR and Nova Lithium

Considering the 90-day investment horizon EMCOR Group is expected to under-perform the Nova Lithium. But the stock apears to be less risky and, when comparing its historical volatility, EMCOR Group is 2.82 times less risky than Nova Lithium. The stock trades about -0.07 of its potential returns per unit of risk. The Nova Lithium Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Nova Lithium Corp on December 19, 2024 and sell it today you would lose (7.00) from holding Nova Lithium Corp or give up 29.17% of portfolio value over 90 days.

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

EMCOR Group  vs.  Nova Lithium Corp

EMCOR Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days EMCOR Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Nova Lithium Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with EMCOR and Nova Lithium

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

The idea behind EMCOR Group and Nova Lithium Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.