Correlation Between Alumina and Novo Resources

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

By analyzing existing cross correlation between Alumina Limited and Novo Resources Corp, you can compare the effects of market volatilities on Alumina and Novo Resources 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 Alumina with a short position of Novo Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumina and Novo Resources.

Diversification Opportunities for Alumina and Novo Resources

0.0

Correlation Coefficient

Alumina  Novo Resources

Pay attention - limited upside

The 3 months correlation between Alumina and Novo is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited and Novo Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novo Resources Corp and Alumina 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 Alumina Limited are associated (or correlated) with Novo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novo Resources Corp has no effect on the direction of Alumina i.e., Alumina and Novo Resources go up and down completely randomly.

Pair Corralation between Alumina and Novo Resources

Assuming the 90 days horizon Alumina Limited is expected to generate 0.61 times more return on investment than Novo Resources. However, Alumina Limited is 1.63 times less risky than Novo Resources. It trades about 0.21 of its potential returns per unit of risk. Novo Resources Corp is currently generating about 0.03 per unit of risk. If you would invest  74.00  in Alumina Limited on February 1, 2024 and sell it today you would earn a total of  28.00  from holding Alumina Limited or generate 37.84% return on investment over 90 days.

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

Alumina Limited  vs.  Novo Resources Corp

Alumina Limited

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alumina Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, Alumina reported solid returns over the last few months and may actually be approaching a breakup point.

Novo Resources Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Novo Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alumina and Novo Resources

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

The idea behind Alumina Limited and Novo Resources Corp 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 Stocks Directory module to find actively traded stocks across global markets.