Correlation Between Nova Fund and Financial Services

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

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

Diversification Opportunities for Nova Fund and Financial Services

0.98

Correlation Coefficient

Nova Fund  Financial Services

Almost no diversification

The 3 months correlation between Nova and Financial is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Nova Fund Class and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Nova Fund 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 Fund Class are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Nova Fund i.e., Nova Fund and Financial Services go up and down completely randomly.

Pair Corralation between Nova Fund and Financial Services

Assuming the 90 days horizon Nova Fund Class is expected to generate 1.35 times more return on investment than Financial Services. However, Nova Fund is 1.35 times more volatile than Financial Services Fund. It trades about 0.24 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.12 per unit of risk. If you would invest  12,078  in Nova Fund Class on May 5, 2025 and sell it today you would earn a total of  2,188  from holding Nova Fund Class or generate 18.12% return on investment over 90 days.

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

Nova Fund Class  vs.  Financial Services Fund

Nova Fund Class

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Fund Class are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nova Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Financial Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nova Fund and Financial Services

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

The idea behind Nova Fund Class and Financial Services Fund 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.