Correlation Between Nova Leap and Sun Residential

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

Diversification Opportunities for Nova Leap and Sun Residential

-0.3

Correlation Coefficient

Nova Leap  Sun Residential

Very good diversification

The 3 months correlation between Nova and Sun is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Nova Leap Health and Sun Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Residential Real 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 Sun Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Residential Real has no effect on the direction of Nova Leap i.e., Nova Leap and Sun Residential go up and down completely randomly.

Pair Corralation between Nova Leap and Sun Residential

Assuming the 90 days horizon Nova Leap Health is expected to generate 1.11 times more return on investment than Sun Residential. However, Nova Leap is 1.11 times more volatile than Sun Residential Real. It trades about 0.05 of its potential returns per unit of risk. Sun Residential Real is currently generating about 0.03 per unit of risk. If you would invest  17.00  in Nova Leap Health on October 6, 2024 and sell it today you would earn a total of  10.00  from holding Nova Leap Health or generate 58.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.68%
Values	Daily Returns

Nova Leap Health  vs.  Sun Residential Real

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 abnormal basic indicators, Nova Leap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sun Residential Real

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Residential Real are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Sun Residential showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova Leap and Sun Residential

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

The idea behind Nova Leap Health and Sun Residential Real 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.