Correlation Between Defence Therapeutics and Nova Mentis

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

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

Diversification Opportunities for Defence Therapeutics and Nova Mentis

-0.11

Correlation Coefficient

Defence Therapeutics  Nova Mentis

Good diversification

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

Pair Corralation between Defence Therapeutics and Nova Mentis

Assuming the 90 days horizon Defence Therapeutics is expected to generate 29.29 times less return on investment than Nova Mentis. But when comparing it to its historical volatility, Defence Therapeutics is 8.84 times less risky than Nova Mentis. It trades about 0.03 of its potential returns per unit of risk. Nova Mentis Life is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3.53  in Nova Mentis Life on September 14, 2024 and sell it today you would lose (1.48) from holding Nova Mentis Life or give up 41.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Defence Therapeutics  vs.  Nova Mentis Life

Defence Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Defence Therapeutics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nova Mentis Life

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Mentis Life are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Nova Mentis reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defence Therapeutics and Nova Mentis

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

The idea behind Defence Therapeutics and Nova Mentis Life 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 CEOs Directory module to screen CEOs from public companies around the world.