Correlation Between ESSA Pharma and NovaBay Pharmaceuticals

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

By analyzing existing cross correlation between ESSA Pharma and NovaBay Pharmaceuticals, you can compare the effects of market volatilities on ESSA Pharma and NovaBay Pharmaceuticals 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 ESSA Pharma with a short position of NovaBay Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Pharma and NovaBay Pharmaceuticals.

Diversification Opportunities for ESSA Pharma and NovaBay Pharmaceuticals

0.42

Correlation Coefficient

ESSA Pharma  NovaBay Pharmaceuticals

Very weak diversification

The 3 months correlation between ESSA and NovaBay is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and NovaBay Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaBay Pharmaceuticals and ESSA Pharma 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 ESSA Pharma are associated (or correlated) with NovaBay Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaBay Pharmaceuticals has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and NovaBay Pharmaceuticals go up and down completely randomly.

Pair Corralation between ESSA Pharma and NovaBay Pharmaceuticals

Given the investment horizon of 90 days ESSA Pharma is expected to under-perform the NovaBay Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, ESSA Pharma is 2.82 times less risky than NovaBay Pharmaceuticals. The stock trades about -0.12 of its potential returns per unit of risk. The NovaBay Pharmaceuticals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  58.00  in NovaBay Pharmaceuticals on December 27, 2024 and sell it today you would earn a total of  2.90  from holding NovaBay Pharmaceuticals or generate 5.0% return on investment over 90 days.

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

ESSA Pharma  vs.  NovaBay Pharmaceuticals

ESSA Pharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NovaBay Pharmaceuticals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NovaBay Pharmaceuticals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, NovaBay Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ESSA Pharma and NovaBay Pharmaceuticals

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

The idea behind ESSA Pharma and NovaBay Pharmaceuticals 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.