Correlation Between Nova and Micronet
Can any of the company-specific risk be diversified away by investing in both Nova and Micronet 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 and Micronet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nova and Micronet, you can compare the effects of market volatilities on Nova and Micronet 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 with a short position of Micronet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova and Micronet.
Diversification Opportunities for Nova and Micronet
Almost no diversification
The 3 months correlation between Nova and Micronet is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Nova and Micronet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micronet and Nova 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 are associated (or correlated) with Micronet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micronet has no effect on the direction of Nova i.e., Nova and Micronet go up and down completely randomly.
Pair Corralation between Nova and Micronet
Assuming the 90 days trading horizon Nova is expected to generate 0.83 times more return on investment than Micronet. However, Nova is 1.21 times less risky than Micronet. It trades about 0.28 of its potential returns per unit of risk. Micronet is currently generating about 0.1 per unit of risk. If you would invest 8,010,000 in Nova on November 27, 2024 and sell it today you would earn a total of 1,388,000 from holding Nova or generate 17.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nova vs. Micronet
Performance |
| Timeline |
| Nova |
| Micronet |
Nova and Micronet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nova and Micronet
The main advantage of trading using opposite Nova and Micronet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nova position performs unexpectedly, Micronet 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 Micronet will offset losses from the drop in Micronet's long position.The idea behind Nova and Micronet 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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