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 ADR, 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

0.53

Correlation Coefficient

Novanta  Hexagon AB

Very weak diversification

The 3 months correlation between Novanta and Hexagon is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Novanta and Hexagon AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexagon AB ADR 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 ADR 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

Given the investment horizon of 90 days Novanta is expected to generate 1.2 times more return on investment than Hexagon AB. However, Novanta is 1.2 times more volatile than Hexagon AB ADR. It trades about 0.03 of its potential returns per unit of risk. Hexagon AB ADR is currently generating about 0.01 per unit of risk. If you would invest  13,794  in Novanta on September 13, 2024 and sell it today you would earn a total of  2,936  from holding Novanta or generate 21.28% return on investment over 90 days.

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

Novanta  vs.  Hexagon AB ADR

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. In spite of comparatively stable basic indicators, Novanta is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Hexagon AB ADR

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hexagon AB ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Hexagon AB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

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 ADR 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.