Correlation Between Nova Mentis and Pharming Group

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

Diversification Opportunities for Nova Mentis and Pharming Group

-0.21

Correlation Coefficient

Nova Mentis  Pharming Group

Very good diversification

The 3 months correlation between Nova and Pharming is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Nova Mentis Life and Pharming Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharming Group NV 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 Pharming Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharming Group NV has no effect on the direction of Nova Mentis i.e., Nova Mentis and Pharming Group go up and down completely randomly.

Pair Corralation between Nova Mentis and Pharming Group

Assuming the 90 days horizon Nova Mentis Life is expected to generate 6.74 times more return on investment than Pharming Group. However, Nova Mentis is 6.74 times more volatile than Pharming Group NV. It trades about 0.12 of its potential returns per unit of risk. Pharming Group NV is currently generating about 0.33 per unit of risk. If you would invest  2.05  in Nova Mentis Life on October 12, 2024 and sell it today you would earn a total of  0.20  from holding Nova Mentis Life or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Nova Mentis Life  vs.  Pharming Group NV

Nova Mentis Life

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Mentis Life are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nova Mentis reported solid returns over the last few months and may actually be approaching a breakup point.

Pharming Group NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pharming Group NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pharming Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Nova Mentis and Pharming Group

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

The idea behind Nova Mentis Life and Pharming Group NV 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.