Correlation Between Swatch Group and Novartis
Can any of the company-specific risk be diversified away by investing in both Swatch Group 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 Swatch Group and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Swatch Group AG and Novartis AG, you can compare the effects of market volatilities on Swatch Group 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 Swatch Group with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swatch Group and Novartis.
Diversification Opportunities for Swatch Group and Novartis
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Swatch and Novartis is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Swatch Group AG and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Swatch Group 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 Swatch Group 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 Swatch Group i.e., Swatch Group and Novartis go up and down completely randomly.
Pair Corralation between Swatch Group and Novartis
Assuming the 90 days trading horizon Swatch Group is expected to generate 1.5 times less return on investment than Novartis. In addition to that, Swatch Group is 2.38 times more volatile than Novartis AG. It trades about 0.04 of its total potential returns per unit of risk. Novartis AG is currently generating about 0.15 per unit of volatility. If you would invest 8,768 in Novartis AG on October 23, 2024 and sell it today you would earn a total of 155.00 from holding Novartis AG or generate 1.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Swatch Group AG vs. Novartis AG
Performance |
| Timeline |
| Swatch Group AG |
| Novartis AG |
Swatch Group and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Swatch Group and Novartis
The main advantage of trading using opposite Swatch Group and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swatch Group 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.| Swatch Group vs. Compagnie Financire Richemont | Swatch Group vs. Swiss Life Holding | Swatch Group vs. Swisscom AG | Swatch Group 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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