Correlation Between CMG Cleantech and Novatech Industries

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

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

Diversification Opportunities for CMG Cleantech and Novatech Industries

0.22

Correlation Coefficient

CMG Cleantech  Novatech Industries

Modest diversification

The 3 months correlation between CMG and Novatech is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding CMG Cleantech SA and Novatech Industries SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatech Industries and CMG Cleantech 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 CMG Cleantech SA are associated (or correlated) with Novatech Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatech Industries has no effect on the direction of CMG Cleantech i.e., CMG Cleantech and Novatech Industries go up and down completely randomly.

Pair Corralation between CMG Cleantech and Novatech Industries

Assuming the 90 days trading horizon CMG Cleantech SA is expected to generate 0.58 times more return on investment than Novatech Industries. However, CMG Cleantech SA is 1.71 times less risky than Novatech Industries. It trades about 0.15 of its potential returns per unit of risk. Novatech Industries SA is currently generating about 0.08 per unit of risk. If you would invest  100.00  in CMG Cleantech SA on September 17, 2024 and sell it today you would earn a total of  28.00  from holding CMG Cleantech SA or generate 28.0% return on investment over 90 days.

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

CMG Cleantech SA  vs.  Novatech Industries SA

CMG Cleantech SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CMG Cleantech SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, CMG Cleantech reported solid returns over the last few months and may actually be approaching a breakup point.

Novatech Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Novatech Industries SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Novatech Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CMG Cleantech and Novatech Industries

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

The idea behind CMG Cleantech SA and Novatech Industries SA 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.