Correlation Between Novo Nordisk and Vertex Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both Novo Nordisk and Vertex Pharmaceuticals 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 Novo Nordisk and Vertex Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novo Nordisk AS and Vertex Pharmaceuticals Incorporated, you can compare the effects of market volatilities on Novo Nordisk and Vertex Pharmaceuticals 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 Novo Nordisk with a short position of Vertex Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novo Nordisk and Vertex Pharmaceuticals.
Diversification Opportunities for Novo Nordisk and Vertex Pharmaceuticals
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Novo and Vertex is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Vertex Pharmaceuticals Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and Novo Nordisk 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 Novo Nordisk AS are associated (or correlated) with Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Vertex Pharmaceuticals go up and down completely randomly.
Pair Corralation between Novo Nordisk and Vertex Pharmaceuticals
Assuming the 90 days trading horizon Novo Nordisk AS is expected to under-perform the Vertex Pharmaceuticals. In addition to that, Novo Nordisk is 1.4 times more volatile than Vertex Pharmaceuticals Incorporated. It trades about -0.2 of its total potential returns per unit of risk. Vertex Pharmaceuticals Incorporated is currently generating about -0.18 per unit of volatility. If you would invest 42,945 in Vertex Pharmaceuticals Incorporated on September 23, 2024 and sell it today you would lose (5,445) from holding Vertex Pharmaceuticals Incorporated or give up 12.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novo Nordisk AS vs. Vertex Pharmaceuticals Incorpo
Performance |
| Timeline |
| Novo Nordisk AS |
| Vertex Pharmaceuticals |
Novo Nordisk and Vertex Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novo Nordisk and Vertex Pharmaceuticals
The main advantage of trading using opposite Novo Nordisk and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novo Nordisk position performs unexpectedly, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals will offset losses from the drop in Vertex Pharmaceuticals' long position.| Novo Nordisk vs. CSL LTD SPONADR | Novo Nordisk vs. CSL Limited | Novo Nordisk vs. Mercedes Benz Group AG | Novo Nordisk vs. Vertex Pharmaceuticals Incorporated |
| Vertex Pharmaceuticals vs. Novo Nordisk AS | Vertex Pharmaceuticals vs. CSL LTD SPONADR | Vertex Pharmaceuticals vs. CSL Limited | Vertex Pharmaceuticals vs. Mercedes Benz Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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