Correlation Between Novotek AB and Lucara Diamond

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

By analyzing existing cross correlation between Novotek AB and Lucara Diamond Corp, you can compare the effects of market volatilities on Novotek AB and Lucara Diamond 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 Novotek AB with a short position of Lucara Diamond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novotek AB and Lucara Diamond.

Diversification Opportunities for Novotek AB and Lucara Diamond

0.39

Correlation Coefficient

Novotek AB  Lucara Diamond

Weak diversification

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

Pair Corralation between Novotek AB and Lucara Diamond

Assuming the 90 days trading horizon Novotek AB is expected to generate 4.56 times less return on investment than Lucara Diamond. But when comparing it to its historical volatility, Novotek AB is 2.12 times less risky than Lucara Diamond. It trades about 0.03 of its potential returns per unit of risk. Lucara Diamond Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  271.00  in Lucara Diamond Corp on September 28, 2024 and sell it today you would earn a total of  73.00  from holding Lucara Diamond Corp or generate 26.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.32%
Values	Daily Returns

Novotek AB  vs.  Lucara Diamond Corp

Novotek AB

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novotek AB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Novotek AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Lucara Diamond Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lucara Diamond Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Lucara Diamond may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Novotek AB and Lucara Diamond

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

The idea behind Novotek AB and Lucara Diamond 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.