Correlation Between FSA and Nova Eye
Can any of the company-specific risk be diversified away by investing in both FSA and Nova Eye 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 FSA and Nova Eye into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FSA Group and Nova Eye Medical, you can compare the effects of market volatilities on FSA and Nova Eye 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 FSA with a short position of Nova Eye. Check out your portfolio center. Please also check ongoing floating volatility patterns of FSA and Nova Eye.
Diversification Opportunities for FSA and Nova Eye
Poor diversification
The 3 months correlation between FSA and Nova is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding FSA Group and Nova Eye Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Eye Medical and FSA 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 FSA Group are associated (or correlated) with Nova Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Eye Medical has no effect on the direction of FSA i.e., FSA and Nova Eye go up and down completely randomly.
Pair Corralation between FSA and Nova Eye
Assuming the 90 days trading horizon FSA Group is expected to under-perform the Nova Eye. But the stock apears to be less risky and, when comparing its historical volatility, FSA Group is 5.66 times less risky than Nova Eye. The stock trades about -0.17 of its potential returns per unit of risk. The Nova Eye Medical is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 17.00 in Nova Eye Medical on September 1, 2024 and sell it today you would lose (1.00) from holding Nova Eye Medical or give up 5.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
FSA Group vs. Nova Eye Medical
Performance |
| Timeline |
| FSA Group |
| Nova Eye Medical |
FSA and Nova Eye Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FSA and Nova Eye
The main advantage of trading using opposite FSA and Nova Eye positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FSA position performs unexpectedly, Nova Eye 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 Eye will offset losses from the drop in Nova Eye's long position.The idea behind FSA Group and Nova Eye Medical 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.| Nova Eye vs. Jupiter Energy | Nova Eye vs. WA1 Resources | Nova Eye vs. Cooper Metals | Nova Eye vs. OD6 Metals |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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