Correlation Between I2S SA and Novatech Industries

Can any of the company-specific risk be diversified away by investing in both I2S SA and Novatech Industries 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 I2S SA and Novatech Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between i2S SA and Novatech Industries SA, you can compare the effects of market volatilities on I2S SA and Novatech Industries 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 I2S SA with a short position of Novatech Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of I2S SA and Novatech Industries.

Diversification Opportunities for I2S SA and Novatech Industries

0.11

Correlation Coefficient

I2S SA  Novatech Industries

Average diversification

The 3 months correlation between I2S and Novatech is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding i2S SA and Novatech Industries SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatech Industries and I2S SA 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 i2S SA are associated (or correlated) with Novatech Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatech Industries has no effect on the direction of I2S SA i.e., I2S SA and Novatech Industries go up and down completely randomly.

Pair Corralation between I2S SA and Novatech Industries

Assuming the 90 days trading horizon I2S SA is expected to generate 1.07 times less return on investment than Novatech Industries. But when comparing it to its historical volatility, i2S SA is 1.14 times less risky than Novatech Industries. It trades about 0.08 of its potential returns per unit of risk. Novatech Industries SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  895.00  in Novatech Industries SA on September 4, 2024 and sell it today you would earn a total of  155.00  from holding Novatech Industries SA or generate 17.32% return on investment over 90 days.

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

i2S SA  vs.  Novatech Industries SA

i2S SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in i2S SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, I2S SA reported solid returns over the last few months and may actually be approaching a breakup point.

Novatech Industries

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with I2S SA and Novatech Industries

The main advantage of trading using opposite I2S SA and Novatech Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if I2S SA position performs unexpectedly, Novatech Industries 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 Novatech Industries will offset losses from the drop in Novatech Industries' long position.

The idea behind i2S SA and Novatech Industries SA 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.