Correlation Between Novartis and AstraZeneca PLC
Can any of the company-specific risk be diversified away by investing in both Novartis and AstraZeneca PLC 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 AstraZeneca PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG and AstraZeneca PLC, you can compare the effects of market volatilities on Novartis and AstraZeneca PLC 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 AstraZeneca PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and AstraZeneca PLC.
Diversification Opportunities for Novartis and AstraZeneca PLC
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Novartis and AstraZeneca is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and AstraZeneca PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AstraZeneca PLC 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 AstraZeneca PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AstraZeneca PLC has no effect on the direction of Novartis i.e., Novartis and AstraZeneca PLC go up and down completely randomly.
Pair Corralation between Novartis and AstraZeneca PLC
Assuming the 90 days trading horizon Novartis AG is expected to generate 0.64 times more return on investment than AstraZeneca PLC. However, Novartis AG is 1.57 times less risky than AstraZeneca PLC. It trades about 0.05 of its potential returns per unit of risk. AstraZeneca PLC is currently generating about -0.01 per unit of risk. If you would invest 185,108 in Novartis AG on September 19, 2024 and sell it today you would earn a total of 15,309 from holding Novartis AG or generate 8.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG vs. AstraZeneca PLC
Performance |
| Timeline |
| Novartis AG |
| AstraZeneca PLC |
Novartis and AstraZeneca PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and AstraZeneca PLC
The main advantage of trading using opposite Novartis and AstraZeneca PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, AstraZeneca PLC 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 AstraZeneca PLC will offset losses from the drop in AstraZeneca PLC's long position.The idea behind Novartis AG and AstraZeneca PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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