Correlation Between AFC Energy and Novonix

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

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

Diversification Opportunities for AFC Energy and Novonix

-0.49

Correlation Coefficient

AFC Energy  Novonix

Very good diversification

The 3 months correlation between AFC and Novonix is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding AFC Energy plc and Novonix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novonix and AFC Energy 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 AFC Energy plc 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 has no effect on the direction of AFC Energy i.e., AFC Energy and Novonix go up and down completely randomly.

Pair Corralation between AFC Energy and Novonix

Assuming the 90 days horizon AFC Energy plc is expected to under-perform the Novonix. But the pink sheet apears to be less risky and, when comparing its historical volatility, AFC Energy plc is 1.14 times less risky than Novonix. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Novonix is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Novonix on September 22, 2024 and sell it today you would lose (6.00) from holding Novonix or give up 12.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

AFC Energy plc  vs.  Novonix

AFC Energy plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFC Energy plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Novonix

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Novonix are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Novonix reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AFC Energy and Novonix

The main advantage of trading using opposite AFC Energy and Novonix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AFC Energy 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 AFC Energy plc and Novonix 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.