Correlation Between Novita SA and Pepco Group

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

By analyzing existing cross correlation between Novita SA and Pepco Group BV, you can compare the effects of market volatilities on Novita SA and Pepco 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 Novita SA with a short position of Pepco Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novita SA and Pepco Group.

Diversification Opportunities for Novita SA and Pepco Group

-0.2

Correlation Coefficient

Novita SA  Pepco Group

Good diversification

The 3 months correlation between Novita and Pepco is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Novita SA and Pepco Group BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pepco Group BV and Novita SA 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 Novita SA are associated (or correlated) with Pepco Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pepco Group BV has no effect on the direction of Novita SA i.e., Novita SA and Pepco Group go up and down completely randomly.

Pair Corralation between Novita SA and Pepco Group

Assuming the 90 days trading horizon Novita SA is expected to under-perform the Pepco Group. But the stock apears to be less risky and, when comparing its historical volatility, Novita SA is 1.59 times less risky than Pepco Group. The stock trades about -0.07 of its potential returns per unit of risk. The Pepco Group BV is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,617  in Pepco Group BV on December 30, 2024 and sell it today you would lose (75.00) from holding Pepco Group BV or give up 4.64% of portfolio value over 90 days.

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

Novita SA  vs.  Pepco Group BV

Novita SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Novita SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pepco Group BV

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pepco Group BV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pepco Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Novita SA and Pepco Group

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

The idea behind Novita SA and Pepco Group BV 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 Anywhere module to track or share privately all of your investments from the convenience of any device.