Correlation Between Novanta and Sono Tek

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

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

Diversification Opportunities for Novanta and Sono Tek

0.84

Correlation Coefficient

Novanta  Sono Tek

Very poor diversification

The 3 months correlation between Novanta and Sono is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Novanta and Sono Tek Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sono Tek Corp 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 Sono Tek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sono Tek Corp has no effect on the direction of Novanta i.e., Novanta and Sono Tek go up and down completely randomly.

Pair Corralation between Novanta and Sono Tek

Given the investment horizon of 90 days Novanta is expected to under-perform the Sono Tek. But the stock apears to be less risky and, when comparing its historical volatility, Novanta is 1.58 times less risky than Sono Tek. The stock trades about -0.16 of its potential returns per unit of risk. The Sono Tek Corp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  413.00  in Sono Tek Corp on December 29, 2024 and sell it today you would lose (57.00) from holding Sono Tek Corp or give up 13.8% of portfolio value over 90 days.

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

Novanta  vs.  Sono Tek Corp

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Sono Tek Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sono Tek Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Novanta and Sono Tek

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

The idea behind Novanta and Sono Tek Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.