Correlation Between Disco Corp and Nova

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

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

Diversification Opportunities for Disco Corp and Nova

0.89

Correlation Coefficient

Disco Corp  Nova

Very poor diversification

The 3 months correlation between Disco and Nova is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Disco Corp ADR and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and Disco Corp 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 Disco Corp ADR are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of Disco Corp i.e., Disco Corp and Nova go up and down completely randomly.

Pair Corralation between Disco Corp and Nova

Assuming the 90 days horizon Disco Corp ADR is expected to under-perform the Nova. In addition to that, Disco Corp is 1.03 times more volatile than Nova. It trades about -0.11 of its total potential returns per unit of risk. Nova is currently generating about -0.08 per unit of volatility. If you would invest  24,233  in Nova on January 16, 2025 and sell it today you would lose (5,555) from holding Nova or give up 22.92% of portfolio value over 90 days.

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

Disco Corp ADR  vs.  Nova

Disco Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Disco Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Nova

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in May 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Disco Corp and Nova

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

The idea behind Disco Corp ADR and Nova 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.