Correlation Between Prevas AB and Novotek AB

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

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

Diversification Opportunities for Prevas AB and Novotek AB

0.08

Correlation Coefficient

Prevas AB  Novotek AB

Significant diversification

The 3 months correlation between Prevas and Novotek is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Prevas AB and Novotek AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novotek AB and Prevas AB 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 Prevas AB are associated (or correlated) with Novotek AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novotek AB has no effect on the direction of Prevas AB i.e., Prevas AB and Novotek AB go up and down completely randomly.

Pair Corralation between Prevas AB and Novotek AB

Assuming the 90 days trading horizon Prevas AB is expected to generate 3.25 times less return on investment than Novotek AB. But when comparing it to its historical volatility, Prevas AB is 1.36 times less risky than Novotek AB. It trades about 0.12 of its potential returns per unit of risk. Novotek AB is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  6,960  in Novotek AB on December 1, 2024 and sell it today you would earn a total of  1,020  from holding Novotek AB or generate 14.66% return on investment over 90 days.

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

Prevas AB  vs.  Novotek AB

Prevas AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prevas AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Prevas AB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Novotek AB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novotek AB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Novotek AB sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prevas AB and Novotek AB

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

The idea behind Prevas AB and Novotek AB 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.