Correlation Between AstraZeneca PLC and Novartis
Can any of the company-specific risk be diversified away by investing in both AstraZeneca PLC 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 AstraZeneca PLC and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AstraZeneca PLC ADR and Novartis AG, you can compare the effects of market volatilities on AstraZeneca PLC 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 AstraZeneca PLC with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of AstraZeneca PLC and Novartis.
Diversification Opportunities for AstraZeneca PLC and Novartis
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between AstraZeneca and Novartis is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding AstraZeneca PLC ADR and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and AstraZeneca PLC 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 AstraZeneca PLC ADR 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 AstraZeneca PLC i.e., AstraZeneca PLC and Novartis go up and down completely randomly.
Pair Corralation between AstraZeneca PLC and Novartis
Considering the 90-day investment horizon AstraZeneca PLC is expected to generate 2.37 times less return on investment than Novartis. But when comparing it to its historical volatility, AstraZeneca PLC ADR is 1.62 times less risky than Novartis. It trades about 0.02 of its potential returns per unit of risk. Novartis AG is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 9,092 in Novartis AG on August 25, 2024 and sell it today you would earn a total of 1,308 from holding Novartis AG or generate 14.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 92.25% |
| Values | Daily Returns |
AstraZeneca PLC ADR vs. Novartis AG
Performance |
| Timeline |
| AstraZeneca PLC ADR |
| Novartis AG |
AstraZeneca PLC and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AstraZeneca PLC and Novartis
The main advantage of trading using opposite AstraZeneca PLC and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AstraZeneca PLC 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.| AstraZeneca PLC vs. Novartis AG ADR | AstraZeneca PLC vs. GlaxoSmithKline PLC ADR | AstraZeneca PLC vs. Roche Holding Ltd | AstraZeneca PLC vs. Bristol Myers Squibb |
| Novartis vs. Roche Holding AG | Novartis vs. AstraZeneca PLC | Novartis vs. Roche Holding Ltd | Novartis vs. Sanofi ADR |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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