Correlation Between InTest and Nova

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

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

Diversification Opportunities for InTest and Nova

0.56

Correlation Coefficient

InTest  Nova

Very weak diversification

The 3 months correlation between InTest and Nova is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding inTest and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and InTest 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 inTest 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 InTest i.e., InTest and Nova go up and down completely randomly.

Pair Corralation between InTest and Nova

Given the investment horizon of 90 days InTest is expected to generate 2.91 times less return on investment than Nova. In addition to that, InTest is 1.1 times more volatile than Nova. It trades about 0.06 of its total potential returns per unit of risk. Nova is currently generating about 0.19 per unit of volatility. If you would invest  18,376  in Nova on November 28, 2024 and sell it today you would earn a total of  6,667  from holding Nova or generate 36.28% return on investment over 90 days.

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

inTest  vs.  Nova

inTest

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in inTest are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, InTest may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Nova

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nova are ranked lower than 15 (%) 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 InTest and Nova

The main advantage of trading using opposite InTest and Nova positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InTest 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 inTest 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.