Correlation Between Nova Mentis and Opthea

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

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

Diversification Opportunities for Nova Mentis and Opthea

0.39

Correlation Coefficient

Nova Mentis  Opthea

Weak diversification

The 3 months correlation between Nova and Opthea is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Nova Mentis Life and Opthea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Opthea and Nova Mentis 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 Mentis Life are associated (or correlated) with Opthea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Opthea has no effect on the direction of Nova Mentis i.e., Nova Mentis and Opthea go up and down completely randomly.

Pair Corralation between Nova Mentis and Opthea

Assuming the 90 days horizon Nova Mentis Life is expected to generate 4.73 times more return on investment than Opthea. However, Nova Mentis is 4.73 times more volatile than Opthea. It trades about 0.07 of its potential returns per unit of risk. Opthea is currently generating about 0.05 per unit of risk. If you would invest  5.05  in Nova Mentis Life on October 2, 2024 and sell it today you would lose (3.55) from holding Nova Mentis Life or give up 70.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.25%
Values	Daily Returns

Nova Mentis Life  vs.  Opthea

Nova Mentis Life

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Mentis Life are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Nova Mentis reported solid returns over the last few months and may actually be approaching a breakup point.

Opthea

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Opthea has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Nova Mentis and Opthea

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

The idea behind Nova Mentis Life and Opthea 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.