Correlation Between Soditech and Novatech Industries

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

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

Diversification Opportunities for Soditech and Novatech Industries

-0.12

Correlation Coefficient

Soditech  Novatech Industries

Good diversification

The 3 months correlation between Soditech and Novatech is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Soditech SA and Novatech Industries SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatech Industries and Soditech 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 Soditech SA 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 Soditech i.e., Soditech and Novatech Industries go up and down completely randomly.

Pair Corralation between Soditech and Novatech Industries

Assuming the 90 days trading horizon Soditech SA is expected to generate 1.66 times more return on investment than Novatech Industries. However, Soditech is 1.66 times more volatile than Novatech Industries SA. It trades about 0.02 of its potential returns per unit of risk. Novatech Industries SA is currently generating about -0.01 per unit of risk. If you would invest  126.00  in Soditech SA on October 3, 2024 and sell it today you would lose (2.00) from holding Soditech SA or give up 1.59% of portfolio value over 90 days.

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

Soditech SA  vs.  Novatech Industries SA

Soditech SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Soditech SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Soditech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Novatech Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novatech Industries SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Novatech Industries is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Soditech and Novatech Industries

The main advantage of trading using opposite Soditech and Novatech Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Soditech 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 Soditech SA 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.