Correlation Between Novartis and Roche Holding
Can any of the company-specific risk be diversified away by investing in both Novartis and Roche Holding 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 Roche Holding 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 Roche Holding Ltd, you can compare the effects of market volatilities on Novartis and Roche Holding 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 Roche Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Roche Holding.
Diversification Opportunities for Novartis and Roche Holding
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Novartis and Roche is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Roche Holding Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roche Holding 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 Roche Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roche Holding has no effect on the direction of Novartis i.e., Novartis and Roche Holding go up and down completely randomly.
Pair Corralation between Novartis and Roche Holding
Considering the 90-day investment horizon Novartis is expected to generate 3.29 times less return on investment than Roche Holding. But when comparing it to its historical volatility, Novartis AG ADR is 1.27 times less risky than Roche Holding. It trades about 0.02 of its potential returns per unit of risk. Roche Holding Ltd is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3,482 in Roche Holding Ltd on November 9, 2024 and sell it today you would earn a total of 476.00 from holding Roche Holding Ltd or generate 13.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG ADR vs. Roche Holding Ltd
Performance |
| Timeline |
| Novartis AG ADR |
| Roche Holding |
Novartis and Roche Holding Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Roche Holding
The main advantage of trading using opposite Novartis and Roche Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Roche Holding 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 Roche Holding will offset losses from the drop in Roche Holding's long position.| Novartis vs. AstraZeneca PLC ADR | Novartis vs. GlaxoSmithKline PLC ADR | Novartis vs. Roche Holding Ltd | Novartis vs. Bristol Myers Squibb |
| Roche Holding vs. Sanofi ADR | Roche Holding vs. AstraZeneca PLC ADR | Roche Holding vs. GlaxoSmithKline PLC ADR | Roche Holding vs. Merck Company |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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