Correlation Between Nova Fund and Applied Finance

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

By analyzing existing cross correlation between Nova Fund Class and Applied Finance Explorer, you can compare the effects of market volatilities on Nova Fund and Applied Finance 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 Nova Fund with a short position of Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova Fund and Applied Finance.

Diversification Opportunities for Nova Fund and Applied Finance

0.54

Correlation Coefficient

Nova Fund  Applied Finance

Very weak diversification

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

Pair Corralation between Nova Fund and Applied Finance

Assuming the 90 days horizon Nova Fund is expected to generate 1.82 times less return on investment than Applied Finance. In addition to that, Nova Fund is 1.26 times more volatile than Applied Finance Explorer. It trades about 0.08 of its total potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.17 per unit of volatility. If you would invest  2,201  in Applied Finance Explorer on October 26, 2024 and sell it today you would earn a total of  71.00  from holding Applied Finance Explorer or generate 3.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Nova Fund Class  vs.  Applied Finance Explorer

Nova Fund Class

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Fund Class are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Nova Fund may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Applied Finance Explorer

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Finance Explorer are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Applied Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nova Fund and Applied Finance

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

The idea behind Nova Fund Class and Applied Finance Explorer 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.