Correlation Between VersaBank and NovaGold Resources

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

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

Diversification Opportunities for VersaBank and NovaGold Resources

0.32

Correlation Coefficient

VersaBank  NovaGold Resources

Weak diversification

The 3 months correlation between VersaBank and NovaGold is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding VersaBank and NovaGold Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NovaGold Resources and VersaBank 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 VersaBank are associated (or correlated) with NovaGold Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NovaGold Resources has no effect on the direction of VersaBank i.e., VersaBank and NovaGold Resources go up and down completely randomly.

Pair Corralation between VersaBank and NovaGold Resources

Assuming the 90 days trading horizon VersaBank is expected to generate 0.91 times more return on investment than NovaGold Resources. However, VersaBank is 1.1 times less risky than NovaGold Resources. It trades about -0.02 of its potential returns per unit of risk. NovaGold Resources is currently generating about -0.03 per unit of risk. If you would invest  2,039  in VersaBank on October 25, 2024 and sell it today you would lose (100.00) from holding VersaBank or give up 4.9% of portfolio value over 90 days.

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

VersaBank  vs.  NovaGold Resources

VersaBank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VersaBank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VersaBank is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NovaGold Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NovaGold Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with VersaBank and NovaGold Resources

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

The idea behind VersaBank and NovaGold Resources 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.