Correlation Between Hexcel and Novocure

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

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

Diversification Opportunities for Hexcel and Novocure

0.66

Correlation Coefficient

Hexcel  Novocure

Poor diversification

The 3 months correlation between Hexcel and Novocure is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Novocure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novocure and Hexcel 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 Hexcel 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 Hexcel i.e., Hexcel and Novocure go up and down completely randomly.

Pair Corralation between Hexcel and Novocure

Considering the 90-day investment horizon Hexcel is expected to generate 9.38 times less return on investment than Novocure. But when comparing it to its historical volatility, Hexcel is 7.68 times less risky than Novocure. It trades about 0.28 of its potential returns per unit of risk. Novocure is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  1,573  in Novocure on September 19, 2024 and sell it today you would earn a total of  1,637  from holding Novocure or generate 104.07% return on investment over 90 days.

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

Hexcel  vs.  Novocure

Hexcel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional 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 Hexcel and Novocure

The main advantage of trading using opposite Hexcel and Novocure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hexcel 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 Hexcel 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..