Correlation Between Novanta and HEXAGON AB

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

By analyzing existing cross correlation between Novanta and HEXAGON AB ADR1, you can compare the effects of market volatilities on Novanta and HEXAGON AB 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 HEXAGON AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novanta and HEXAGON AB.

Diversification Opportunities for Novanta and HEXAGON AB

-0.07

Correlation Coefficient

Novanta  HEXAGON AB

Good diversification

The 3 months correlation between Novanta and HEXAGON is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Novanta and HEXAGON AB ADR1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEXAGON AB ADR1 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 HEXAGON AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEXAGON AB ADR1 has no effect on the direction of Novanta i.e., Novanta and HEXAGON AB go up and down completely randomly.

Pair Corralation between Novanta and HEXAGON AB

Assuming the 90 days trading horizon Novanta is expected to under-perform the HEXAGON AB. But the stock apears to be less risky and, when comparing its historical volatility, Novanta is 1.11 times less risky than HEXAGON AB. The stock trades about -0.05 of its potential returns per unit of risk. The HEXAGON AB ADR1 is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  940.00  in HEXAGON AB ADR1 on September 27, 2024 and sell it today you would lose (40.00) from holding HEXAGON AB ADR1 or give up 4.26% of portfolio value over 90 days.

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

Novanta  vs.  HEXAGON AB ADR1

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.

HEXAGON AB ADR1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HEXAGON AB ADR1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, HEXAGON AB 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 HEXAGON AB

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

The idea behind Novanta and HEXAGON AB ADR1 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.