Correlation Between Novartis and Gilead Sciences
Can any of the company-specific risk be diversified away by investing in both Novartis and Gilead Sciences 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 Gilead Sciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG ADR and Gilead Sciences, you can compare the effects of market volatilities on Novartis and Gilead Sciences 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 Gilead Sciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Gilead Sciences.
Diversification Opportunities for Novartis and Gilead Sciences
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Novartis and Gilead is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 ADR are associated (or correlated) with Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Novartis i.e., Novartis and Gilead Sciences go up and down completely randomly.
Pair Corralation between Novartis and Gilead Sciences
Considering the 90-day investment horizon Novartis AG ADR is expected to generate 0.78 times more return on investment than Gilead Sciences. However, Novartis AG ADR is 1.28 times less risky than Gilead Sciences. It trades about 0.05 of its potential returns per unit of risk. Gilead Sciences is currently generating about 0.02 per unit of risk. If you would invest 7,993 in Novartis AG ADR on August 28, 2024 and sell it today you would earn a total of 2,361 from holding Novartis AG ADR or generate 29.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG ADR vs. Gilead Sciences
Performance |
| Timeline |
| Novartis AG ADR |
| Gilead Sciences |
Novartis and Gilead Sciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Gilead Sciences
The main advantage of trading using opposite Novartis and Gilead Sciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Gilead Sciences 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 Gilead Sciences will offset losses from the drop in Gilead Sciences' long position.| Novartis vs. AstraZeneca PLC ADR | Novartis vs. GlaxoSmithKline PLC ADR | Novartis vs. Roche Holding Ltd | Novartis vs. Bristol Myers Squibb |
| Gilead Sciences vs. Amgen Inc | Gilead Sciences vs. Merck Company | Gilead Sciences vs. AbbVie Inc | Gilead Sciences vs. Johnson Johnson |
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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