Correlation Between Basic Materials and Nova Fund

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

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

Diversification Opportunities for Basic Materials and Nova Fund

-0.23

Correlation Coefficient

Basic Materials  Nova Fund

Very good diversification

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

Pair Corralation between Basic Materials and Nova Fund

Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Nova Fund. In addition to that, Basic Materials is 4.06 times more volatile than Nova Fund Class. It trades about -0.17 of its total potential returns per unit of risk. Nova Fund Class is currently generating about 0.0 per unit of volatility. If you would invest  10,817  in Nova Fund Class on September 28, 2024 and sell it today you would lose (27.00) from holding Nova Fund Class or give up 0.25% of portfolio value over 90 days.

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

Basic Materials Fund  vs.  Nova Fund Class

Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Materials Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund'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 fund investors.

Nova Fund Class

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Fund Class are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Nova Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Basic Materials and Nova Fund

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

The idea behind Basic Materials Fund and Nova Fund Class 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.