Correlation Between Novartis and SGS SA
Can any of the company-specific risk be diversified away by investing in both Novartis and SGS SA 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 SGS SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG and SGS SA, you can compare the effects of market volatilities on Novartis and SGS SA 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 SGS SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and SGS SA.
Diversification Opportunities for Novartis and SGS SA
Very poor diversification
The 3 months correlation between Novartis and SGS is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and SGS SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SGS SA 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 SGS SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SGS SA has no effect on the direction of Novartis i.e., Novartis and SGS SA go up and down completely randomly.
Pair Corralation between Novartis and SGS SA
Assuming the 90 days trading horizon Novartis AG is expected to under-perform the SGS SA. In addition to that, Novartis is 1.02 times more volatile than SGS SA. It trades about -0.28 of its total potential returns per unit of risk. SGS SA is currently generating about -0.23 per unit of volatility. If you would invest 9,274 in SGS SA on August 28, 2024 and sell it today you would lose (586.00) from holding SGS SA or give up 6.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG vs. SGS SA
Performance |
| Timeline |
| Novartis AG |
| SGS SA |
Novartis and SGS SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and SGS SA
The main advantage of trading using opposite Novartis and SGS SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, SGS SA 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 SGS SA will offset losses from the drop in SGS SA's long position.| Novartis vs. Nestl SA | Novartis vs. Zurich Insurance Group | Novartis vs. Swiss Re AG | Novartis vs. UBS 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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