Correlation Between Sensata Technologies and Novanta

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

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

Diversification Opportunities for Sensata Technologies and Novanta

0.63

Correlation Coefficient

Sensata Technologies  Novanta

Poor diversification

The 3 months correlation between Sensata and Novanta is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sensata Technologies Holding and Novanta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novanta and Sensata Technologies 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 Sensata Technologies Holding 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 Sensata Technologies i.e., Sensata Technologies and Novanta go up and down completely randomly.

Pair Corralation between Sensata Technologies and Novanta

Allowing for the 90-day total investment horizon Sensata Technologies Holding is expected to under-perform the Novanta. But the stock apears to be less risky and, when comparing its historical volatility, Sensata Technologies Holding is 1.04 times less risky than Novanta. The stock trades about -0.09 of its potential returns per unit of risk. The Novanta is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  17,309  in Novanta on September 2, 2024 and sell it today you would lose (611.00) from holding Novanta or give up 3.53% of portfolio value over 90 days.

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

Sensata Technologies Holding  vs.  Novanta

Sensata Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sensata Technologies Holding 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.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sensata Technologies and Novanta

The main advantage of trading using opposite Sensata Technologies and Novanta positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sensata Technologies 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 Sensata Technologies Holding 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.