Correlation Between Axway Software and Novatech Industries

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

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

Diversification Opportunities for Axway Software and Novatech Industries

0.17

Correlation Coefficient

Axway Software  Novatech Industries

Average diversification

The 3 months correlation between Axway and Novatech is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Axway Software and Novatech Industries SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novatech Industries and Axway Software 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 Axway Software are associated (or correlated) with Novatech Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novatech Industries has no effect on the direction of Axway Software i.e., Axway Software and Novatech Industries go up and down completely randomly.

Pair Corralation between Axway Software and Novatech Industries

Assuming the 90 days trading horizon Axway Software is expected to generate 1.22 times less return on investment than Novatech Industries. But when comparing it to its historical volatility, Axway Software is 4.29 times less risky than Novatech Industries. It trades about 0.27 of its potential returns per unit of risk. Novatech Industries SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  890.00  in Novatech Industries SA on September 14, 2024 and sell it today you would earn a total of  160.00  from holding Novatech Industries SA or generate 17.98% return on investment over 90 days.

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

Axway Software  vs.  Novatech Industries SA

Axway Software

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Axway Software are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Axway Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Novatech Industries

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Novatech Industries SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Novatech Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Axway Software and Novatech Industries

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

The idea behind Axway Software and Novatech Industries SA 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.