Correlation Between Now and NOV
Can any of the company-specific risk be diversified away by investing in both Now and NOV 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 Now and NOV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Now Inc and NOV Inc, you can compare the effects of market volatilities on Now and NOV 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 Now with a short position of NOV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Now and NOV.
Diversification Opportunities for Now and NOV
Weak diversification
The 3 months correlation between Now and NOV is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Now Inc and NOV Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOV Inc and Now 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 Now Inc are associated (or correlated) with NOV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOV Inc has no effect on the direction of Now i.e., Now and NOV go up and down completely randomly.
Pair Corralation between Now and NOV
Given the investment horizon of 90 days Now Inc is expected to generate 1.38 times more return on investment than NOV. However, Now is 1.38 times more volatile than NOV Inc. It trades about 0.34 of its potential returns per unit of risk. NOV Inc is currently generating about 0.12 per unit of risk. If you would invest 1,198 in Now Inc on August 28, 2024 and sell it today you would earn a total of 301.00 from holding Now Inc or generate 25.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Now Inc vs. NOV Inc
Performance |
| Timeline |
| Now Inc |
| NOV Inc |
Now and NOV Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Now and NOV
The main advantage of trading using opposite Now and NOV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Now position performs unexpectedly, NOV 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 NOV will offset losses from the drop in NOV's long position.The idea behind Now Inc and NOV Inc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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