Correlation Between Textron and Novocure

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

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

Diversification Opportunities for Textron and Novocure

-0.51

Correlation Coefficient

Textron  Novocure

Excellent diversification

The 3 months correlation between Textron and Novocure is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Novocure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novocure and Textron 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 Textron 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 Textron i.e., Textron and Novocure go up and down completely randomly.

Pair Corralation between Textron and Novocure

Considering the 90-day investment horizon Textron is expected to under-perform the Novocure. But the stock apears to be less risky and, when comparing its historical volatility, Textron is 4.46 times less risky than Novocure. The stock trades about -0.13 of its potential returns per unit of risk. The Novocure is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,745  in Novocure on September 20, 2024 and sell it today you would earn a total of  1,409  from holding Novocure or generate 80.74% return on investment over 90 days.

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

Textron  vs.  Novocure

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Novocure

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novocure are ranked lower than 12 (%) 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 Textron and Novocure

The main advantage of trading using opposite Textron and Novocure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron 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 Textron 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.