Correlation Between Novan and AMP

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Can any of the company-specific risk be diversified away by investing in both Novan and AMP 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 Novan and AMP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novan Inc and AMP LIMITED, you can compare the effects of market volatilities on Novan and AMP 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 Novan with a short position of AMP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novan and AMP.

Diversification Opportunities for Novan and AMP

-0.15
  Correlation Coefficient

Good diversification

The 3 months correlation between Novan and AMP is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Novan Inc and AMP LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMP LIMITED and Novan 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 Novan Inc are associated (or correlated) with AMP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMP LIMITED has no effect on the direction of Novan i.e., Novan and AMP go up and down completely randomly.

Pair Corralation between Novan and AMP

Given the investment horizon of 90 days Novan Inc is expected to generate 1.34 times more return on investment than AMP. However, Novan is 1.34 times more volatile than AMP LIMITED. It trades about 0.02 of its potential returns per unit of risk. AMP LIMITED is currently generating about -0.05 per unit of risk. If you would invest  486.00  in Novan Inc on May 19, 2022 and sell it today you would lose (190.00)  from holding Novan Inc or give up 39.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy96.58%
ValuesDaily Returns

Novan Inc  vs.  AMP LIMITED

 Performance (%) 
       Timeline  
Novan Inc 
Novan Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Novan Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Novan is not utilizing all of its potentials. The new stock price mess, may contribute to short-term losses for the institutional investors.

Novan Price Channel

AMP LIMITED 
AMP Performance
0 of 100
Over the last 90 days AMP LIMITED has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Novan and AMP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Novan and AMP

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

Novan Inc

Pair trading matchups for Novan

The idea behind Novan Inc and AMP LIMITED 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.

AMP LIMITED

Pair trading matchups for AMP

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against AMP as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. AMP's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, AMP's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to AMP LIMITED.
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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