Correlation Between Nova Leap and Equity Metals

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

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

Diversification Opportunities for Nova Leap and Equity Metals

0.54

Correlation Coefficient

Nova Leap  Equity Metals

Very weak diversification

The 3 months correlation between Nova and Equity is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Nova Leap Health and Equity Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Metals Corp and Nova Leap 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 Nova Leap Health are associated (or correlated) with Equity Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Metals Corp has no effect on the direction of Nova Leap i.e., Nova Leap and Equity Metals go up and down completely randomly.

Pair Corralation between Nova Leap and Equity Metals

Assuming the 90 days horizon Nova Leap is expected to generate 1.81 times less return on investment than Equity Metals. But when comparing it to its historical volatility, Nova Leap Health is 1.3 times less risky than Equity Metals. It trades about 0.03 of its potential returns per unit of risk. Equity Metals Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Equity Metals Corp on October 7, 2024 and sell it today you would earn a total of  4.00  from holding Equity Metals Corp or generate 25.0% return on investment over 90 days.

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

Nova Leap Health  vs.  Equity Metals Corp

Nova Leap Health

Risk-Adjusted Performance

4 of 100

Insignificant

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

Equity Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Equity Metals is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Nova Leap and Equity Metals

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

The idea behind Nova Leap Health and Equity Metals Corp 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.