Correlation Between Novonix and NVent Electric

Can any of the company-specific risk be diversified away by investing in both Novonix and NVent 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 Novonix and NVent Electric 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 nVent Electric PLC, you can compare the effects of market volatilities on Novonix and NVent 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 Novonix with a short position of NVent Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novonix and NVent Electric.

Diversification Opportunities for Novonix and NVent Electric

0.55

Correlation Coefficient

Novonix  NVent Electric

Very weak diversification

The 3 months correlation between Novonix and NVent is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Novonix Ltd ADR and nVent Electric PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nVent Electric 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 NVent Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nVent Electric PLC has no effect on the direction of Novonix i.e., Novonix and NVent Electric go up and down completely randomly.

Pair Corralation between Novonix and NVent Electric

Considering the 90-day investment horizon Novonix Ltd ADR is expected to under-perform the NVent Electric. In addition to that, Novonix is 3.27 times more volatile than nVent Electric PLC. It trades about -0.05 of its total potential returns per unit of risk. nVent Electric PLC is currently generating about 0.02 per unit of volatility. If you would invest  7,493  in nVent Electric PLC on September 13, 2024 and sell it today you would earn a total of  66.00  from holding nVent Electric PLC or generate 0.88% return on investment over 90 days.

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

Novonix Ltd ADR  vs.  nVent Electric PLC

Novonix Ltd ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Novonix Ltd ADR are ranked lower than 3 (%) 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.

nVent Electric PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in nVent Electric PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, NVent Electric unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novonix and NVent Electric

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

The idea behind Novonix Ltd ADR and nVent Electric 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.