Correlation Between Novartis and ABB
Can any of the company-specific risk be diversified away by investing in both Novartis and ABB 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 Novartis and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG and ABB, you can compare the effects of market volatilities on Novartis and ABB 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 Novartis with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and ABB.
Diversification Opportunities for Novartis and ABB
Very good diversification
The 3 months correlation between Novartis and ABB is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Novartis 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 Novartis AG are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Novartis i.e., Novartis and ABB go up and down completely randomly.
Pair Corralation between Novartis and ABB
Assuming the 90 days trading horizon Novartis is expected to generate 2.47 times less return on investment than ABB. But when comparing it to its historical volatility, Novartis AG is 1.25 times less risky than ABB. It trades about 0.05 of its potential returns per unit of risk. ABB is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 2,780 in ABB on August 27, 2024 and sell it today you would earn a total of 2,236 from holding ABB or generate 80.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG vs. ABB
Performance |
| Timeline |
| Novartis AG |
| ABB |
Novartis and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and ABB
The main advantage of trading using opposite Novartis and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.| Novartis vs. Roche Holding AG | Novartis vs. Nestl SA | Novartis vs. Zurich Insurance Group | Novartis vs. Swiss Re 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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