Correlation Between Novanta and Fortive

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

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

Diversification Opportunities for Novanta and Fortive

0.04

Correlation Coefficient

Novanta  Fortive

Significant diversification

The 3 months correlation between Novanta and Fortive is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Novanta and Fortive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortive and Novanta 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 Novanta are associated (or correlated) with Fortive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortive has no effect on the direction of Novanta i.e., Novanta and Fortive go up and down completely randomly.

Pair Corralation between Novanta and Fortive

Assuming the 90 days trading horizon Novanta is expected to under-perform the Fortive. In addition to that, Novanta is 1.59 times more volatile than Fortive. It trades about -0.05 of its total potential returns per unit of risk. Fortive is currently generating about 0.03 per unit of volatility. If you would invest  6,995  in Fortive on September 27, 2024 and sell it today you would earn a total of  141.00  from holding Fortive or generate 2.02% return on investment over 90 days.

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

Novanta  vs.  Fortive

Novanta

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fortive

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fortive are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Fortive is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Novanta and Fortive

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

The idea behind Novanta and Fortive 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.