Correlation Between Sanofi ADR and Novartis
Can any of the company-specific risk be diversified away by investing in both Sanofi ADR 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 Sanofi ADR and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sanofi ADR and Novartis AG, you can compare the effects of market volatilities on Sanofi ADR 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 Sanofi ADR with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sanofi ADR and Novartis.
Diversification Opportunities for Sanofi ADR and Novartis
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sanofi and Novartis is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sanofi ADR and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Sanofi ADR 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 Sanofi ADR 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 Sanofi ADR i.e., Sanofi ADR and Novartis go up and down completely randomly.
Pair Corralation between Sanofi ADR and Novartis
Considering the 90-day investment horizon Sanofi ADR is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, Sanofi ADR is 1.79 times less risky than Novartis. The stock trades about -0.21 of its potential returns per unit of risk. The Novartis AG is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 11,200 in Novartis AG on August 25, 2024 and sell it today you would lose (800.00) from holding Novartis AG or give up 7.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sanofi ADR vs. Novartis AG
Performance |
| Timeline |
| Sanofi ADR |
| Novartis AG |
Sanofi ADR and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sanofi ADR and Novartis
The main advantage of trading using opposite Sanofi ADR and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanofi ADR 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.| Sanofi ADR vs. AstraZeneca PLC ADR | Sanofi ADR vs. Roche Holding Ltd | Sanofi ADR vs. GlaxoSmithKline PLC ADR | Sanofi ADR vs. Merck Company |
| Novartis vs. Roche Holding AG | Novartis vs. AstraZeneca PLC | Novartis vs. Roche Holding Ltd | Novartis vs. Sanofi ADR |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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