Correlation Between Novonix and Advanced Energy

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

By analyzing existing cross correlation between Novonix Ltd ADR and Advanced Energy Industries, you can compare the effects of market volatilities on Novonix and Advanced Energy 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 Novonix with a short position of Advanced Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novonix and Advanced Energy.

Diversification Opportunities for Novonix and Advanced Energy

0.54

Correlation Coefficient

Novonix  Advanced Energy

Very weak diversification

The 3 months correlation between Novonix and Advanced is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Novonix Ltd ADR and Advanced Energy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Indu and Novonix 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 Novonix Ltd ADR are associated (or correlated) with Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Indu has no effect on the direction of Novonix i.e., Novonix and Advanced Energy go up and down completely randomly.

Pair Corralation between Novonix and Advanced Energy

Considering the 90-day investment horizon Novonix Ltd ADR is expected to under-perform the Advanced Energy. In addition to that, Novonix is 1.5 times more volatile than Advanced Energy Industries. It trades about -0.13 of its total potential returns per unit of risk. Advanced Energy Industries is currently generating about -0.08 per unit of volatility. If you would invest  11,494  in Advanced Energy Industries on December 29, 2024 and sell it today you would lose (2,014) from holding Advanced Energy Industries or give up 17.52% of portfolio value over 90 days.

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

Novonix Ltd ADR  vs.  Advanced Energy Industries

Novonix Ltd ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Novonix Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Advanced Energy Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Energy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Novonix and Advanced Energy

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

The idea behind Novonix Ltd ADR and Advanced Energy Industries 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.