Correlation Between GSK Plc and Novartis
Can any of the company-specific risk be diversified away by investing in both GSK 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 GSK Plc and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GSK plc and Novartis AG, you can compare the effects of market volatilities on GSK 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 GSK Plc with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of GSK Plc and Novartis.
Diversification Opportunities for GSK Plc and Novartis
Poor diversification
The 3 months correlation between GSK and Novartis is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding GSK plc and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and GSK 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 GSK plc 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 GSK Plc i.e., GSK Plc and Novartis go up and down completely randomly.
Pair Corralation between GSK Plc and Novartis
Assuming the 90 days horizon GSK Plc is expected to generate 1.57 times less return on investment than Novartis. But when comparing it to its historical volatility, GSK plc is 1.02 times less risky than Novartis. It trades about 0.02 of its potential returns per unit of risk. Novartis AG is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 8,205 in Novartis AG on August 24, 2024 and sell it today you would earn a total of 1,620 from holding Novartis AG or generate 19.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 92.95% |
| Values | Daily Returns |
GSK plc vs. Novartis AG
Performance |
| Timeline |
| GSK plc |
| Novartis AG |
GSK Plc and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GSK Plc and Novartis
The main advantage of trading using opposite GSK Plc and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GSK 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.| GSK Plc vs. Santen Pharmaceutical Co | GSK Plc vs. Ono Pharmaceutical Co | GSK Plc vs. Grifols SA ADR | GSK Plc vs. Pfizer Inc |
| Novartis vs. Ono Pharmaceutical Co | Novartis vs. GSK plc | Novartis vs. Grifols SA ADR | Novartis vs. Pfizer Inc |
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 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.
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