Correlation Between Solar Alliance and Nova Leap

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

By analyzing existing cross correlation between Solar Alliance Energy and Nova Leap Health, you can compare the effects of market volatilities on Solar Alliance and Nova Leap 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 Solar Alliance with a short position of Nova Leap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solar Alliance and Nova Leap.

Diversification Opportunities for Solar Alliance and Nova Leap

0.2

Correlation Coefficient

Solar Alliance  Nova Leap

Modest diversification

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

Pair Corralation between Solar Alliance and Nova Leap

Assuming the 90 days trading horizon Solar Alliance Energy is expected to under-perform the Nova Leap. In addition to that, Solar Alliance is 1.25 times more volatile than Nova Leap Health. It trades about -0.23 of its total potential returns per unit of risk. Nova Leap Health is currently generating about 0.06 per unit of volatility. If you would invest  26.00  in Nova Leap Health on October 5, 2024 and sell it today you would earn a total of  1.00  from holding Nova Leap Health or generate 3.85% return on investment over 90 days.

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

Solar Alliance Energy  vs.  Nova Leap Health

Solar Alliance Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Solar Alliance is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Nova Leap Health

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Leap Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Nova Leap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solar Alliance and Nova Leap

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

The idea behind Solar Alliance Energy and Nova Leap Health 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.