Correlation Between Eos Energy and Novonix

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

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

Diversification Opportunities for Eos Energy and Novonix

-0.24

Correlation Coefficient

Eos Energy  Novonix

Very good diversification

The 3 months correlation between Eos and Novonix is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Eos Energy Enterprises and Novonix Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novonix Ltd ADR and Eos 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 Eos Energy Enterprises 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 Ltd ADR has no effect on the direction of Eos Energy i.e., Eos Energy and Novonix go up and down completely randomly.

Pair Corralation between Eos Energy and Novonix

Assuming the 90 days horizon Eos Energy Enterprises is expected to generate 1.66 times more return on investment than Novonix. However, Eos Energy is 1.66 times more volatile than Novonix Ltd ADR. It trades about 0.36 of its potential returns per unit of risk. Novonix Ltd ADR is currently generating about -0.02 per unit of risk. If you would invest  18.00  in Eos Energy Enterprises on September 23, 2024 and sell it today you would earn a total of  35.00  from holding Eos Energy Enterprises or generate 194.44% return on investment over 90 days.

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

Eos Energy Enterprises  vs.  Novonix Ltd ADR

Eos Energy Enterprises

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eos Energy Enterprises are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Eos Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Novonix Ltd ADR

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Eos Energy and Novonix

The main advantage of trading using opposite Eos Energy and Novonix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eos 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 Eos Energy Enterprises and Novonix Ltd ADR 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.