Correlation Between Coherent and Novanta

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

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

Diversification Opportunities for Coherent and Novanta

0.75

Correlation Coefficient

Coherent  Novanta

Poor diversification

The 3 months correlation between Coherent and Novanta is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Coherent and Novanta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novanta and Coherent 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 Coherent 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 Coherent i.e., Coherent and Novanta go up and down completely randomly.

Pair Corralation between Coherent and Novanta

Given the investment horizon of 90 days Coherent is expected to under-perform the Novanta. In addition to that, Coherent is 2.6 times more volatile than Novanta. It trades about -0.08 of its total potential returns per unit of risk. Novanta is currently generating about -0.11 per unit of volatility. If you would invest  16,698  in Novanta on November 28, 2024 and sell it today you would lose (1,873) from holding Novanta or give up 11.22% of portfolio value over 90 days.

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

Coherent  vs.  Novanta

Coherent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coherent has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Novanta

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Coherent and Novanta

The main advantage of trading using opposite Coherent and Novanta positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coherent 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 Coherent 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.