Correlation Between Ensign and Nova Leap

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

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

Diversification Opportunities for Ensign and Nova Leap

0.34

Correlation Coefficient

Ensign  Nova Leap

Weak diversification

The 3 months correlation between Ensign and Nova is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group 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 Ensign 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 The Ensign Group 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 Ensign i.e., Ensign and Nova Leap go up and down completely randomly.

Pair Corralation between Ensign and Nova Leap

Given the investment horizon of 90 days The Ensign Group is expected to generate 0.26 times more return on investment than Nova Leap. However, The Ensign Group is 3.91 times less risky than Nova Leap. It trades about -0.12 of its potential returns per unit of risk. Nova Leap Health is currently generating about -0.1 per unit of risk. If you would invest  15,433  in The Ensign Group on September 2, 2024 and sell it today you would lose (812.00) from holding The Ensign Group or give up 5.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

The Ensign Group  vs.  Nova Leap Health

Ensign Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Ensign Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nova Leap Health

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Leap Health are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Nova Leap reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ensign and Nova Leap

The main advantage of trading using opposite Ensign and Nova Leap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ensign 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 The Ensign Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.