Correlation Between Nova Organic and TOA PAINT

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

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

Diversification Opportunities for Nova Organic and TOA PAINT

0.87

Correlation Coefficient

Nova Organic  TOA PAINT

Very poor diversification

The 3 months correlation between Nova and TOA is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nova Organic PCL and TOA PAINT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOA PAINT and Nova Organic 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 Organic PCL are associated (or correlated) with TOA PAINT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOA PAINT has no effect on the direction of Nova Organic i.e., Nova Organic and TOA PAINT go up and down completely randomly.

Pair Corralation between Nova Organic and TOA PAINT

Assuming the 90 days horizon Nova Organic PCL is expected to under-perform the TOA PAINT. In addition to that, Nova Organic is 1.36 times more volatile than TOA PAINT. It trades about -0.07 of its total potential returns per unit of risk. TOA PAINT is currently generating about -0.06 per unit of volatility. If you would invest  3,216  in TOA PAINT on October 21, 2024 and sell it today you would lose (1,926) from holding TOA PAINT or give up 59.89% of portfolio value over 90 days.

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

Nova Organic PCL  vs.  TOA PAINT

Nova Organic PCL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova Organic PCL 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 fundamental drivers remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

TOA PAINT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOA PAINT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Nova Organic and TOA PAINT

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

The idea behind Nova Organic PCL and TOA PAINT 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.