Correlation Between Flux Power and Novonix

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

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

Diversification Opportunities for Flux Power and Novonix

0.22

Correlation Coefficient

Flux Power  Novonix

Modest diversification

The 3 months correlation between Flux and Novonix is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Flux Power Holdings 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 Flux Power 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 Flux Power Holdings 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 Flux Power i.e., Flux Power and Novonix go up and down completely randomly.

Pair Corralation between Flux Power and Novonix

Given the investment horizon of 90 days Flux Power Holdings is expected to under-perform the Novonix. But the stock apears to be less risky and, when comparing its historical volatility, Flux Power Holdings is 1.48 times less risky than Novonix. The stock trades about -0.14 of its potential returns per unit of risk. The Novonix Ltd ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  143.00  in Novonix Ltd ADR on September 23, 2024 and sell it today you would earn a total of  22.00  from holding Novonix Ltd ADR or generate 15.38% return on investment over 90 days.

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

Flux Power Holdings  vs.  Novonix Ltd ADR

Flux Power Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flux Power Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Flux Power and Novonix

The main advantage of trading using opposite Flux Power and Novonix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flux Power 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 Flux Power Holdings 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.