Correlation Between Nova Mentis and Ocean Electric

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

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

Diversification Opportunities for Nova Mentis and Ocean Electric

-0.23

Correlation Coefficient

Nova Mentis  Ocean Electric

Very good diversification

The 3 months correlation between Nova and Ocean is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Nova Mentis Life and Ocean Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Electric and Nova Mentis 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 Nova Mentis Life are associated (or correlated) with Ocean Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Electric has no effect on the direction of Nova Mentis i.e., Nova Mentis and Ocean Electric go up and down completely randomly.

Pair Corralation between Nova Mentis and Ocean Electric

Assuming the 90 days horizon Nova Mentis Life is expected to generate 1.56 times more return on investment than Ocean Electric. However, Nova Mentis is 1.56 times more volatile than Ocean Electric. It trades about 0.04 of its potential returns per unit of risk. Ocean Electric is currently generating about 0.04 per unit of risk. If you would invest  31.00  in Nova Mentis Life on September 3, 2024 and sell it today you would lose (28.40) from holding Nova Mentis Life or give up 91.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	30.71%
Values	Daily Returns

Nova Mentis Life  vs.  Ocean Electric

Nova Mentis Life

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Mentis Life are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nova Mentis reported solid returns over the last few months and may actually be approaching a breakup point.

Ocean Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocean Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Ocean Electric is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Nova Mentis and Ocean Electric

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

The idea behind Nova Mentis Life and Ocean Electric 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.