Correlation Between Nova Lithium and Leading Edge
Can any of the company-specific risk be diversified away by investing in both Nova Lithium and Leading Edge 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 Nova Lithium and Leading Edge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nova Lithium Corp and Leading Edge Materials, you can compare the effects of market volatilities on Nova Lithium and Leading Edge 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 Nova Lithium with a short position of Leading Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova Lithium and Leading Edge.
Diversification Opportunities for Nova Lithium and Leading Edge
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Nova and Leading is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Nova Lithium Corp and Leading Edge Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leading Edge Materials and Nova Lithium 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 Nova Lithium Corp are associated (or correlated) with Leading Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leading Edge Materials has no effect on the direction of Nova Lithium i.e., Nova Lithium and Leading Edge go up and down completely randomly.
Pair Corralation between Nova Lithium and Leading Edge
Assuming the 90 days horizon Nova Lithium Corp is expected to under-perform the Leading Edge. In addition to that, Nova Lithium is 1.03 times more volatile than Leading Edge Materials. It trades about -0.07 of its total potential returns per unit of risk. Leading Edge Materials is currently generating about -0.03 per unit of volatility. If you would invest 7.10 in Leading Edge Materials on September 1, 2024 and sell it today you would lose (0.40) from holding Leading Edge Materials or give up 5.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Nova Lithium Corp vs. Leading Edge Materials
Performance |
| Timeline |
| Nova Lithium Corp |
| Leading Edge Materials |
Nova Lithium and Leading Edge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nova Lithium and Leading Edge
The main advantage of trading using opposite Nova Lithium and Leading Edge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova Lithium position performs unexpectedly, Leading Edge 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 Leading Edge will offset losses from the drop in Leading Edge's long position.| Nova Lithium vs. Legacy Education | Nova Lithium vs. Apple Inc | Nova Lithium vs. NVIDIA | Nova Lithium vs. Microsoft |
| Leading Edge vs. South32 Limited | Leading Edge vs. NioCorp Developments Ltd | Leading Edge vs. HUMANA INC | Leading Edge vs. SCOR PK |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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