Correlation Between Novartis and Swiss Re
Can any of the company-specific risk be diversified away by investing in both Novartis and Swiss Re 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 Swiss Re into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG and Swiss Re AG, you can compare the effects of market volatilities on Novartis and Swiss Re 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 Swiss Re. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Swiss Re.
Diversification Opportunities for Novartis and Swiss Re
Very good diversification
The 3 months correlation between Novartis and Swiss is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Swiss Re AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swiss Re AG 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 Swiss Re. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swiss Re AG has no effect on the direction of Novartis i.e., Novartis and Swiss Re go up and down completely randomly.
Pair Corralation between Novartis and Swiss Re
Assuming the 90 days trading horizon Novartis AG is expected to under-perform the Swiss Re. But the stock apears to be less risky and, when comparing its historical volatility, Novartis AG is 1.63 times less risky than Swiss Re. The stock trades about -0.28 of its potential returns per unit of risk. The Swiss Re AG is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 11,185 in Swiss Re AG on August 24, 2024 and sell it today you would earn a total of 1,535 from holding Swiss Re AG or generate 13.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG vs. Swiss Re AG
Performance |
| Timeline |
| Novartis AG |
| Swiss Re AG |
Novartis and Swiss Re Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Swiss Re
The main advantage of trading using opposite Novartis and Swiss Re positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Swiss Re 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 Swiss Re will offset losses from the drop in Swiss Re's long position.| Novartis vs. Roche Holding AG | Novartis vs. Nestl SA | Novartis vs. Zurich Insurance Group | Novartis vs. Swiss Re AG |
| Swiss Re vs. Zurich Insurance Group | Swiss Re vs. Swiss Life Holding | Swiss Re vs. Novartis AG | Swiss Re 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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