Correlation Between Lucara Diamond and Novotek AB

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

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

Diversification Opportunities for Lucara Diamond and Novotek AB

0.39

Correlation Coefficient

Lucara Diamond  Novotek AB

Weak diversification

The 3 months correlation between Lucara and Novotek is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Lucara Diamond Corp and Novotek AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novotek AB and Lucara Diamond 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 Lucara Diamond Corp are associated (or correlated) with Novotek AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novotek AB has no effect on the direction of Lucara Diamond i.e., Lucara Diamond and Novotek AB go up and down completely randomly.

Pair Corralation between Lucara Diamond and Novotek AB

Assuming the 90 days trading horizon Lucara Diamond is expected to generate 6.55 times less return on investment than Novotek AB. In addition to that, Lucara Diamond is 1.28 times more volatile than Novotek AB. It trades about 0.01 of its total potential returns per unit of risk. Novotek AB is currently generating about 0.05 per unit of volatility. If you would invest  4,244  in Novotek AB on September 28, 2024 and sell it today you would earn a total of  2,976  from holding Novotek AB or generate 70.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.81%
Values	Daily Returns

Lucara Diamond Corp  vs.  Novotek AB

Lucara Diamond Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lucara Diamond Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Lucara Diamond may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Novotek AB

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novotek AB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Novotek AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lucara Diamond and Novotek AB

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

The idea behind Lucara Diamond Corp and Novotek AB 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.