Correlation Between Teledyne Technologies and Novanta

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

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

Diversification Opportunities for Teledyne Technologies and Novanta

0.07

Correlation Coefficient

Teledyne Technologies  Novanta

Significant diversification

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

Pair Corralation between Teledyne Technologies and Novanta

Assuming the 90 days horizon Teledyne Technologies Incorporated is expected to generate 0.68 times more return on investment than Novanta. However, Teledyne Technologies Incorporated is 1.48 times less risky than Novanta. It trades about 0.17 of its potential returns per unit of risk. Novanta is currently generating about -0.05 per unit of risk. If you would invest  38,840  in Teledyne Technologies Incorporated on September 27, 2024 and sell it today you would earn a total of  6,050  from holding Teledyne Technologies Incorporated or generate 15.58% return on investment over 90 days.

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

Teledyne Technologies Incorpor  vs.  Novanta

Teledyne Technologies

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Teledyne Technologies Incorporated are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Teledyne Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Teledyne Technologies and Novanta

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

The idea behind Teledyne Technologies Incorporated and Novanta 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.