Correlation Between Biogen and Novartis
Can any of the company-specific risk be diversified away by investing in both Biogen 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 Biogen and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Biogen Inc and Novartis AG ADR, you can compare the effects of market volatilities on Biogen 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 Biogen with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biogen and Novartis.
Diversification Opportunities for Biogen and Novartis
Poor diversification
The 3 months correlation between Biogen and Novartis is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Biogen Inc and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR and Biogen 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 Biogen Inc 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 ADR has no effect on the direction of Biogen i.e., Biogen and Novartis go up and down completely randomly.
Pair Corralation between Biogen and Novartis
Given the investment horizon of 90 days Biogen Inc is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, Biogen Inc is 1.0 times less risky than Novartis. The stock trades about -0.16 of its potential returns per unit of risk. The Novartis AG ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 10,022 in Novartis AG ADR on November 9, 2024 and sell it today you would earn a total of 676.00 from holding Novartis AG ADR or generate 6.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Biogen Inc vs. Novartis AG ADR
Performance |
| Timeline |
| Biogen Inc |
| Novartis AG ADR |
Biogen and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Biogen and Novartis
The main advantage of trading using opposite Biogen and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biogen 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.| Biogen vs. Bristol Myers Squibb | Biogen vs. AbbVie Inc | Biogen vs. Merck Company | Biogen vs. Gilead Sciences |
| Novartis vs. AstraZeneca PLC ADR | Novartis vs. GlaxoSmithKline PLC ADR | Novartis vs. Roche Holding Ltd | Novartis vs. Bristol Myers Squibb |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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