Correlation Between Microsoft and Novartis
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Novartis AG, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Novartis.
Diversification Opportunities for Microsoft and Novartis
Very good diversification
The 3 months correlation between Microsoft and Novartis is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Novartis go up and down completely randomly.
Pair Corralation between Microsoft and Novartis
Assuming the 90 days trading horizon Microsoft is expected to generate 0.93 times more return on investment than Novartis. However, Microsoft is 1.07 times less risky than Novartis. It trades about 0.1 of its potential returns per unit of risk. Novartis AG is currently generating about 0.04 per unit of risk. If you would invest 457,892 in Microsoft on September 20, 2024 and sell it today you would earn a total of 437,751 from holding Microsoft or generate 95.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Novartis AG
Performance |
| Timeline |
| Microsoft |
| Novartis AG |
Microsoft and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Novartis
The main advantage of trading using opposite Microsoft and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. The Bank of | Microsoft vs. Monster Beverage Corp | Microsoft vs. UnitedHealth Group Incorporated | Microsoft vs. New Oriental Education |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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