Correlation Between Novocure and Hexcel

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

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

Diversification Opportunities for Novocure and Hexcel

0.66

Correlation Coefficient

Novocure  Hexcel

Poor diversification

The 3 months correlation between Novocure and Hexcel is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Novocure and Hexcel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexcel and Novocure 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 Novocure are associated (or correlated) with Hexcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hexcel has no effect on the direction of Novocure i.e., Novocure and Hexcel go up and down completely randomly.

Pair Corralation between Novocure and Hexcel

Given the investment horizon of 90 days Novocure is expected to generate 6.25 times more return on investment than Hexcel. However, Novocure is 6.25 times more volatile than Hexcel. It trades about 0.33 of its potential returns per unit of risk. Hexcel is currently generating about 0.11 per unit of risk. If you would invest  1,573  in Novocure on September 19, 2024 and sell it today you would earn a total of  1,581  from holding Novocure or generate 100.51% return on investment over 90 days.

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

Novocure  vs.  Hexcel

Novocure

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Novocure are ranked lower than 11 (%) 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.

Hexcel

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 4 (%) 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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Novocure and Hexcel

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

The idea behind Novocure and Hexcel 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.