Correlation Between HEICO and Novocure

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

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

Diversification Opportunities for HEICO and Novocure

0.06

Correlation Coefficient

HEICO  Novocure

Significant diversification

The 3 months correlation between HEICO and Novocure is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding HEICO and Novocure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novocure and HEICO 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 HEICO are associated (or correlated) with Novocure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novocure has no effect on the direction of HEICO i.e., HEICO and Novocure go up and down completely randomly.

Pair Corralation between HEICO and Novocure

Assuming the 90 days horizon HEICO is expected to under-perform the Novocure. But the stock apears to be less risky and, when comparing its historical volatility, HEICO is 5.46 times less risky than Novocure. The stock trades about -0.02 of its potential returns per unit of risk. The Novocure is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,796  in Novocure on September 14, 2024 and sell it today you would earn a total of  1,210  from holding Novocure or generate 67.37% return on investment over 90 days.

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

HEICO  vs.  Novocure

HEICO

Risk-Adjusted Performance

0 of 100

Very Weak

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

Novocure

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novocure are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Novocure reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HEICO and Novocure

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

The idea behind HEICO and Novocure 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.