Correlation Between RedFlow and Novonix

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Can any of the company-specific risk be diversified away by investing in both RedFlow and Novonix 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 RedFlow and Novonix into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RedFlow Limited and Novonix Ltd ADR, you can compare the effects of market volatilities on RedFlow and Novonix 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 RedFlow with a short position of Novonix. Check out your portfolio center. Please also check ongoing floating volatility patterns of RedFlow and Novonix.

Diversification Opportunities for RedFlow and Novonix

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between RedFlow and Novonix is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding RedFlow Limited and Novonix Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novonix Ltd ADR and RedFlow 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 RedFlow Limited are associated (or correlated) with Novonix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novonix Ltd ADR has no effect on the direction of RedFlow i.e., RedFlow and Novonix go up and down completely randomly.

Pair Corralation between RedFlow and Novonix

Assuming the 90 days horizon RedFlow Limited is expected to generate 11.81 times more return on investment than Novonix. However, RedFlow is 11.81 times more volatile than Novonix Ltd ADR. It trades about 0.08 of its potential returns per unit of risk. Novonix Ltd ADR is currently generating about 0.0 per unit of risk. If you would invest  15.00  in RedFlow Limited on November 27, 2024 and sell it today you would lose (14.99) from holding RedFlow Limited or give up 99.93% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.16%
ValuesDaily Returns

RedFlow Limited  vs.  Novonix Ltd ADR

 Performance 
       Timeline  
RedFlow Limited 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in RedFlow Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, RedFlow reported solid returns over the last few months and may actually be approaching a breakup point.
Novonix Ltd ADR 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Novonix Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

RedFlow and Novonix Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with RedFlow and Novonix

The main advantage of trading using opposite RedFlow and Novonix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RedFlow position performs unexpectedly, Novonix 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 Novonix will offset losses from the drop in Novonix's long position.
The idea behind RedFlow Limited and Novonix Ltd ADR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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