Correlation Between Nova Leap and Extendicare

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

Diversification Opportunities for Nova Leap and Extendicare

-0.63

Correlation Coefficient

Nova Leap  Extendicare

Excellent diversification

The 3 months correlation between Nova and Extendicare is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nova Leap Health and Extendicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extendicare 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 Extendicare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extendicare has no effect on the direction of Nova Leap i.e., Nova Leap and Extendicare go up and down completely randomly.

Pair Corralation between Nova Leap and Extendicare

Assuming the 90 days horizon Nova Leap Health is expected to under-perform the Extendicare. In addition to that, Nova Leap is 2.52 times more volatile than Extendicare. It trades about -0.01 of its total potential returns per unit of risk. Extendicare is currently generating about 0.22 per unit of volatility. If you would invest  1,036  in Extendicare on December 30, 2024 and sell it today you would earn a total of  266.00  from holding Extendicare or generate 25.68% return on investment over 90 days.

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

Nova Leap Health  vs.  Extendicare

Nova Leap Health

Risk-Adjusted Performance

Very 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.

Extendicare

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Extendicare are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Extendicare displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova Leap and Extendicare

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

The idea behind Nova Leap Health and Extendicare 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.