Correlation Between AudioCodes and Nova

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

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

Diversification Opportunities for AudioCodes and Nova

0.69

Correlation Coefficient

AudioCodes  Nova

Poor diversification

The 3 months correlation between AudioCodes and Nova is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding AudioCodes and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and AudioCodes 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 AudioCodes are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of AudioCodes i.e., AudioCodes and Nova go up and down completely randomly.

Pair Corralation between AudioCodes and Nova

Assuming the 90 days trading horizon AudioCodes is expected to under-perform the Nova. But the stock apears to be less risky and, when comparing its historical volatility, AudioCodes is 1.31 times less risky than Nova. The stock trades about -0.05 of its potential returns per unit of risk. The Nova is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,366,000  in Nova on September 16, 2024 and sell it today you would lose (520,000) from holding Nova or give up 7.06% of portfolio value over 90 days.

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

AudioCodes  vs.  Nova

AudioCodes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AudioCodes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Nova

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nova is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with AudioCodes and Nova

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

The idea behind AudioCodes and Nova 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..