Correlation Between Roche Holding and Novartis
Can any of the company-specific risk be diversified away by investing in both Roche Holding and Novartis 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 Roche Holding and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Roche Holding AG and Novartis AG, you can compare the effects of market volatilities on Roche Holding and Novartis 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 Roche Holding with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roche Holding and Novartis.
Diversification Opportunities for Roche Holding and Novartis
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Roche and Novartis is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding AG and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Roche Holding 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 Roche Holding AG are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of Roche Holding i.e., Roche Holding and Novartis go up and down completely randomly.
Pair Corralation between Roche Holding and Novartis
Assuming the 90 days trading horizon Roche Holding AG is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, Roche Holding AG is 1.18 times less risky than Novartis. The stock trades about -0.38 of its potential returns per unit of risk. The Novartis AG is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest 9,981 in Novartis AG on August 27, 2024 and sell it today you would lose (613.00) from holding Novartis AG or give up 6.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Roche Holding AG vs. Novartis AG
Performance |
| Timeline |
| Roche Holding AG |
| Novartis AG |
Roche Holding and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Roche Holding and Novartis
The main advantage of trading using opposite Roche Holding and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.| Roche Holding vs. Novartis AG | Roche Holding vs. Nestl SA | Roche Holding vs. Zurich Insurance Group | Roche Holding vs. Swiss Re AG |
| Novartis vs. Roche Holding AG | Novartis vs. Nestl SA | Novartis vs. Zurich Insurance Group | Novartis vs. Swiss Re 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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