Correlation Between Nova Eye and Australian Unity

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

By analyzing existing cross correlation between Nova Eye Medical and Australian Unity Office, you can compare the effects of market volatilities on Nova Eye and Australian Unity 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 Eye with a short position of Australian Unity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nova Eye and Australian Unity.

Diversification Opportunities for Nova Eye and Australian Unity

0.85

Correlation Coefficient

Nova Eye  Australian Unity

Very poor diversification

The 3 months correlation between Nova and Australian is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nova Eye Medical and Australian Unity Office in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Unity Office and Nova Eye 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 Eye Medical are associated (or correlated) with Australian Unity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Unity Office has no effect on the direction of Nova Eye i.e., Nova Eye and Australian Unity go up and down completely randomly.

Pair Corralation between Nova Eye and Australian Unity

Assuming the 90 days trading horizon Nova Eye Medical is expected to generate 2.36 times more return on investment than Australian Unity. However, Nova Eye is 2.36 times more volatile than Australian Unity Office. It trades about 0.08 of its potential returns per unit of risk. Australian Unity Office is currently generating about 0.12 per unit of risk. If you would invest  23.00  in Nova Eye Medical on February 27, 2024 and sell it today you would earn a total of  3.00  from holding Nova Eye Medical or generate 13.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.56%
Values	Daily Returns

Nova Eye Medical  vs.  Australian Unity Office

Nova Eye Medical

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Eye Medical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Nova Eye unveiled solid returns over the last few months and may actually be approaching a breakup point.

Australian Unity Office

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Unity Office are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Australian Unity unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nova Eye and Australian Unity

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

The idea behind Nova Eye Medical and Australian Unity Office 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..