Correlation Between Novartis and Allergan Plc

By analyzing existing cross correlation between Novartis AG and Allergan Plc you can compare the effects of market volatilities on Novartis and Allergan 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 Allergan Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Allergan Plc.

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Can any of the company-specific risk be diversified away by investing in both Novartis and Allergan Plc at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing Novartis and Allergan Plc into the same portfolio which is an essential part of fundamental portfolio management process.

Diversification Opportunities for Novartis and Allergan Plc

-0.05
Correlation
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<div class='circular--portrait-small' style='font-weight: 700;background:#347AFC;color: #ffffff;font-size:1.1em;padding-top: 10px;;'>AP</div>

Good diversification

The 3 months correlation between Novartis and Allergan is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Allergan Plc in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Allergan 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 Allergan Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allergan Plc has no effect on the direction of Novartis i.e. Novartis and Allergan Plc go up and down completely randomly.

Pair Corralation between Novartis and Allergan Plc

Considering 30-days investment horizon, Novartis is expected to generate 154.85 times less return on investment than Allergan Plc. But when comparing it to its historical volatility, Novartis AG is 50.17 times less risky than Allergan Plc. It trades about 0.04 of its potential returns per unit of risk. Allergan Plc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  18,546  in Allergan Plc on May 6, 2020 and sell it today you would earn a total of  756.00  from holding Allergan Plc or generate 4.08% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy87.3%
ValuesDaily Returns

Novartis AG  vs.  Allergan Plc

 Performance (%) 
      Timeline 
Novartis AG 
22

Novartis Risk-Adjusted Performance

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG are ranked lower than 2 (%) of all global equities and portfolios over the last 30 days. In defiance of relatively conflicting forward-looking signals, Novartis may actually be approaching a critical reversion point that can send shares even higher in July 2020.
Allergan Plc 
00

Allergan Plc Risk-Adjusted Performance

Over the last 30 days Allergan Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Allthough quite weak forward indicators, Allergan Plc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Novartis and Allergan Plc Volatility Contrast

 Predicted Return Density 
      Returns 
Check out your portfolio center. Please also try Equity Valuation module to check real value of public entities based on technical and fundamental data.


 
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