Correlation Between Cameo Communications and Nova Technology

Can any of the company-specific risk be diversified away by investing in both Cameo Communications and Nova Technology 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 Cameo Communications and Nova Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cameo Communications and Nova Technology, you can compare the effects of market volatilities on Cameo Communications and Nova Technology 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 Cameo Communications with a short position of Nova Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cameo Communications and Nova Technology.

Diversification Opportunities for Cameo Communications and Nova Technology

0.75

Correlation Coefficient

Cameo Communications  Nova Technology

Poor diversification

The 3 months correlation between Cameo and Nova is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Cameo Communications and Nova Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Technology and Cameo Communications 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 Cameo Communications are associated (or correlated) with Nova Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Technology has no effect on the direction of Cameo Communications i.e., Cameo Communications and Nova Technology go up and down completely randomly.

Pair Corralation between Cameo Communications and Nova Technology

Assuming the 90 days trading horizon Cameo Communications is expected to generate 1.27 times less return on investment than Nova Technology. In addition to that, Cameo Communications is 1.65 times more volatile than Nova Technology. It trades about 0.07 of its total potential returns per unit of risk. Nova Technology is currently generating about 0.15 per unit of volatility. If you would invest  16,000  in Nova Technology on September 3, 2024 and sell it today you would earn a total of  2,900  from holding Nova Technology or generate 18.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Cameo Communications  vs.  Nova Technology

Cameo Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cameo Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Cameo Communications showed solid returns over the last few months and may actually be approaching a breakup point.

Nova Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Nova Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cameo Communications and Nova Technology

The main advantage of trading using opposite Cameo Communications and Nova Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cameo Communications position performs unexpectedly, Nova Technology 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 Technology will offset losses from the drop in Nova Technology's long position.

The idea behind Cameo Communications and Nova Technology 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.