Correlation Between Nuvalent and ECD Automotive

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

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

Diversification Opportunities for Nuvalent and ECD Automotive

0.28

Correlation Coefficient

Nuvalent  ECD Automotive

Modest diversification

The 3 months correlation between Nuvalent and ECD is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and ECD Automotive Design in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECD Automotive Design and Nuvalent 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 Nuvalent are associated (or correlated) with ECD Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECD Automotive Design has no effect on the direction of Nuvalent i.e., Nuvalent and ECD Automotive go up and down completely randomly.

Pair Corralation between Nuvalent and ECD Automotive

Given the investment horizon of 90 days Nuvalent is expected to under-perform the ECD Automotive. But the stock apears to be less risky and, when comparing its historical volatility, Nuvalent is 2.3 times less risky than ECD Automotive. The stock trades about -0.36 of its potential returns per unit of risk. The ECD Automotive Design is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  80.00  in ECD Automotive Design on December 4, 2024 and sell it today you would earn a total of  5.00  from holding ECD Automotive Design or generate 6.25% return on investment over 90 days.

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

Nuvalent  vs.  ECD Automotive Design

Nuvalent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

ECD Automotive Design

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECD Automotive Design has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Nuvalent and ECD Automotive

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

The idea behind Nuvalent and ECD Automotive Design 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.