Correlation Between Novanta and Cognex

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

By analyzing existing cross correlation between Novanta and Cognex, you can compare the effects of market volatilities on Novanta and Cognex 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 Cognex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novanta and Cognex.

Diversification Opportunities for Novanta and Cognex

0.55

Correlation Coefficient

Novanta  Cognex

Very weak diversification

The 3 months correlation between Novanta and Cognex is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Novanta and Cognex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cognex 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 Cognex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cognex has no effect on the direction of Novanta i.e., Novanta and Cognex go up and down completely randomly.

Pair Corralation between Novanta and Cognex

Given the investment horizon of 90 days Novanta is expected to generate 1.01 times more return on investment than Cognex. However, Novanta is 1.01 times more volatile than Cognex. It trades about 0.03 of its potential returns per unit of risk. Cognex is currently generating about 0.01 per unit of risk. If you would invest  13,615  in Novanta on July 25, 2024 and sell it today you would earn a total of  3,585  from holding Novanta or generate 26.33% return on investment over 90 days.

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

Novanta  vs.  Cognex

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.

Cognex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cognex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in November 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Novanta and Cognex

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

The idea behind Novanta and Cognex 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.