Correlation Between ABB and Novartis
Can any of the company-specific risk be diversified away by investing in both ABB and Novartis 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 ABB and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABB and Novartis AG, you can compare the effects of market volatilities on ABB and Novartis 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 ABB with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and Novartis.
Diversification Opportunities for ABB and Novartis
Very good diversification
The 3 months correlation between ABB and Novartis is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding ABB and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and ABB 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 ABB are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of ABB i.e., ABB and Novartis go up and down completely randomly.
Pair Corralation between ABB and Novartis
Assuming the 90 days trading horizon ABB is expected to generate 1.42 times more return on investment than Novartis. However, ABB is 1.42 times more volatile than Novartis AG. It trades about 0.09 of its potential returns per unit of risk. Novartis AG is currently generating about 0.05 per unit of risk. If you would invest 3,736 in ABB on November 5, 2024 and sell it today you would earn a total of 1,259 from holding ABB or generate 33.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABB vs. Novartis AG
Performance |
| Timeline |
| ABB |
| Novartis AG |
ABB and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABB and Novartis
The main advantage of trading using opposite ABB and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.The idea behind ABB and Novartis AG 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.| Novartis vs. Roche Holding AG | Novartis vs. Nestl SA | Novartis vs. Zurich Insurance Group | Novartis vs. Swiss Re AG |
Check out your portfolio center.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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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