Correlation Between FREYR Battery and Novonix

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

By analyzing existing cross correlation between FREYR Battery SA and Novonix Ltd ADR, you can compare the effects of market volatilities on FREYR Battery and Novonix 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 FREYR Battery with a short position of Novonix. Check out your portfolio center. Please also check ongoing floating volatility patterns of FREYR Battery and Novonix.

Diversification Opportunities for FREYR Battery and Novonix

0.89

Correlation Coefficient

FREYR Battery  Novonix

Very poor diversification

The 3 months correlation between FREYR and Novonix is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding FREYR Battery SA and Novonix Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novonix Ltd ADR and FREYR 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 FREYR Battery SA are associated (or correlated) with Novonix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novonix Ltd ADR has no effect on the direction of FREYR Battery i.e., FREYR Battery and Novonix go up and down completely randomly.

Pair Corralation between FREYR Battery and Novonix

Given the investment horizon of 90 days FREYR Battery SA is expected to under-perform the Novonix. In addition to that, FREYR Battery is 1.12 times more volatile than Novonix Ltd ADR. It trades about -0.2 of its total potential returns per unit of risk. Novonix Ltd ADR is currently generating about -0.08 per unit of volatility. If you would invest  179.00  in Novonix Ltd ADR on December 25, 2024 and sell it today you would lose (47.00) from holding Novonix Ltd ADR or give up 26.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

FREYR Battery SA  vs.  Novonix Ltd ADR

FREYR Battery SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days FREYR Battery SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Novonix Ltd ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Novonix Ltd ADR 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with FREYR Battery and Novonix

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

The idea behind FREYR Battery SA and Novonix Ltd ADR 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.