Correlation Between Novatech Industries and Soditech

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

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

Diversification Opportunities for Novatech Industries and Soditech

-0.12

Correlation Coefficient

Novatech Industries  Soditech

Good diversification

The 3 months correlation between Novatech and Soditech is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Novatech Industries SA and Soditech SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soditech SA and Novatech Industries 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 Novatech Industries SA are associated (or correlated) with Soditech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soditech SA has no effect on the direction of Novatech Industries i.e., Novatech Industries and Soditech go up and down completely randomly.

Pair Corralation between Novatech Industries and Soditech

Assuming the 90 days trading horizon Novatech Industries SA is expected to under-perform the Soditech. But the stock apears to be less risky and, when comparing its historical volatility, Novatech Industries SA is 1.66 times less risky than Soditech. The stock trades about -0.01 of its potential returns per unit of risk. The Soditech SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  126.00  in Soditech SA on October 3, 2024 and sell it today you would lose (2.00) from holding Soditech SA or give up 1.59% of portfolio value over 90 days.

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

Novatech Industries SA  vs.  Soditech SA

Novatech Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novatech Industries SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Novatech Industries is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Soditech SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Soditech SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Soditech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Novatech Industries and Soditech

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

The idea behind Novatech Industries SA and Soditech 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.