Correlation Between NovaGold Resources and US Bancorp

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

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

Diversification Opportunities for NovaGold Resources and US Bancorp

0.27

Correlation Coefficient

NovaGold Resources  US Bancorp

Modest diversification

The 3 months correlation between NovaGold and USB is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NovaGold Resources and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and NovaGold Resources 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 NovaGold Resources are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of NovaGold Resources i.e., NovaGold Resources and US Bancorp go up and down completely randomly.

Pair Corralation between NovaGold Resources and US Bancorp

Allowing for the 90-day total investment horizon NovaGold Resources is expected to under-perform the US Bancorp. In addition to that, NovaGold Resources is 1.38 times more volatile than US Bancorp. It trades about -0.01 of its total potential returns per unit of risk. US Bancorp is currently generating about 0.02 per unit of volatility. If you would invest  3,758  in US Bancorp on January 19, 2024 and sell it today you would earn a total of  186.00  from holding US Bancorp or generate 4.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.75%
Values	Daily Returns

NovaGold Resources  vs.  US Bancorp

NovaGold Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

US Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, US Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NovaGold Resources and US Bancorp

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

The idea behind NovaGold Resources and US Bancorp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.