Correlation Between Novonix and AFC Energy

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

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

Diversification Opportunities for Novonix and AFC Energy

-0.45

Correlation Coefficient

Novonix  AFC Energy

Very good diversification

The 3 months correlation between Novonix and AFC is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Novonix Ltd ADR and AFC Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFC Energy plc and Novonix 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 Novonix Ltd ADR are associated (or correlated) with AFC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFC Energy plc has no effect on the direction of Novonix i.e., Novonix and AFC Energy go up and down completely randomly.

Pair Corralation between Novonix and AFC Energy

Considering the 90-day investment horizon Novonix Ltd ADR is expected to generate 1.17 times more return on investment than AFC Energy. However, Novonix is 1.17 times more volatile than AFC Energy plc. It trades about -0.01 of its potential returns per unit of risk. AFC Energy plc is currently generating about -0.07 per unit of risk. If you would invest  220.00  in Novonix Ltd ADR on September 23, 2024 and sell it today you would lose (55.00) from holding Novonix Ltd ADR or give up 25.0% of portfolio value over 90 days.

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

Novonix Ltd ADR  vs.  AFC Energy plc

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.

AFC Energy plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFC Energy plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Novonix and AFC Energy

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

The idea behind Novonix Ltd ADR and AFC Energy plc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.