Correlation Between Nova Leap and Eros Resources

Can any of the company-specific risk be diversified away by investing in both Nova Leap and Eros Resources 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 Eros Resources 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 Eros Resources Corp, you can compare the effects of market volatilities on Nova Leap and Eros Resources 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 Eros Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova Leap and Eros Resources.

Diversification Opportunities for Nova Leap and Eros Resources

0.5

Correlation Coefficient

Nova Leap  Eros Resources

Very weak diversification

The 3 months correlation between Nova and Eros is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Nova Leap Health and Eros Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eros Resources 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 Eros Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eros Resources Corp has no effect on the direction of Nova Leap i.e., Nova Leap and Eros Resources go up and down completely randomly.

Pair Corralation between Nova Leap and Eros Resources

Assuming the 90 days horizon Nova Leap is expected to generate 197.32 times less return on investment than Eros Resources. But when comparing it to its historical volatility, Nova Leap Health is 2.46 times less risky than Eros Resources. It trades about 0.0 of its potential returns per unit of risk. Eros Resources Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Eros Resources Corp on October 22, 2024 and sell it today you would earn a total of  1.50  from holding Eros Resources Corp or generate 37.5% 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.  Eros Resources Corp

Nova Leap Health

Risk-Adjusted Performance

0 of 100

Weak

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

Eros Resources Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eros Resources Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Eros Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova Leap and Eros Resources

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

The idea behind Nova Leap Health and Eros Resources 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.