Correlation Between Formula Systems and Nova

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

By analyzing existing cross correlation between Formula Systems 1985 and Nova, you can compare the effects of market volatilities on Formula Systems and Nova 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 Formula Systems with a short position of Nova. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and Nova.

Diversification Opportunities for Formula Systems and Nova

0.24

Correlation Coefficient

Formula Systems  Nova

Modest diversification

The 3 months correlation between Formula and Nova is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and Formula Systems 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 Formula Systems 1985 are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of Formula Systems i.e., Formula Systems and Nova go up and down completely randomly.

Pair Corralation between Formula Systems and Nova

Assuming the 90 days horizon Formula Systems 1985 is expected to under-perform the Nova. In addition to that, Formula Systems is 1.41 times more volatile than Nova. It trades about -0.04 of its total potential returns per unit of risk. Nova is currently generating about 0.53 per unit of volatility. If you would invest  20,244  in Nova on October 26, 2024 and sell it today you would earn a total of  4,937  from holding Nova or generate 24.39% return on investment over 90 days.

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

Formula Systems 1985  vs.  Nova

Formula Systems 1985

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Formula Systems may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nova

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nova are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain primary indicators, Nova demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formula Systems and Nova

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

The idea behind Formula Systems 1985 and Nova 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.