Correlation Between CAC All and Novatech Industries

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

By analyzing existing cross correlation between CAC All Shares and Novatech Industries SA, you can compare the effects of market volatilities on CAC All and Novatech Industries 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 CAC All with a short position of Novatech Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAC All and Novatech Industries.

Diversification Opportunities for CAC All and Novatech Industries

-0.78

Correlation Coefficient

CAC All  Novatech Industries

Pay attention - limited upside

The 3 months correlation between CAC and Novatech is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding CAC All Shares and Novatech Industries SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatech Industries and CAC All 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 CAC All Shares are associated (or correlated) with Novatech Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatech Industries has no effect on the direction of CAC All i.e., CAC All and Novatech Industries go up and down completely randomly.

Pair Corralation between CAC All and Novatech Industries

Assuming the 90 days trading horizon CAC All Shares is expected to generate 0.37 times more return on investment than Novatech Industries. However, CAC All Shares is 2.71 times less risky than Novatech Industries. It trades about 0.12 of its potential returns per unit of risk. Novatech Industries SA is currently generating about -0.12 per unit of risk. If you would invest  870,672  in CAC All Shares on December 30, 2024 and sell it today you would earn a total of  59,052  from holding CAC All Shares or generate 6.78% return on investment over 90 days.

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

CAC All Shares  vs.  Novatech Industries SA

Pair Trading with CAC All and Novatech Industries

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

The idea behind CAC All Shares and Novatech Industries SA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.