Correlation Between Rio2 and Novo Resources

Can any of the company-specific risk be diversified away by investing in both Rio2 and Novo Resources 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 Rio2 and Novo Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio2 Limited and Novo Resources Corp, you can compare the effects of market volatilities on Rio2 and Novo Resources 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 Rio2 with a short position of Novo Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio2 and Novo Resources.

Diversification Opportunities for Rio2 and Novo Resources

0.2

Correlation Coefficient

Rio2  Novo Resources

Modest diversification

The 3 months correlation between Rio2 and Novo is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rio2 Limited and Novo Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novo Resources Corp and Rio2 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 Rio2 Limited are associated (or correlated) with Novo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novo Resources Corp has no effect on the direction of Rio2 i.e., Rio2 and Novo Resources go up and down completely randomly.

Pair Corralation between Rio2 and Novo Resources

Assuming the 90 days horizon Rio2 Limited is expected to generate 0.79 times more return on investment than Novo Resources. However, Rio2 Limited is 1.27 times less risky than Novo Resources. It trades about 0.05 of its potential returns per unit of risk. Novo Resources Corp is currently generating about -0.12 per unit of risk. If you would invest  39.00  in Rio2 Limited on September 3, 2024 and sell it today you would earn a total of  7.00  from holding Rio2 Limited or generate 17.95% return on investment over 90 days.

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

Rio2 Limited  vs.  Novo Resources Corp

Rio2 Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio2 Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Rio2 reported solid returns over the last few months and may actually be approaching a breakup point.

Novo Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Rio2 and Novo Resources

The main advantage of trading using opposite Rio2 and Novo Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rio2 position performs unexpectedly, Novo Resources 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 Novo Resources will offset losses from the drop in Novo Resources' long position.

The idea behind Rio2 Limited and Novo Resources Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.