Correlation Between DermTech and Novartis

Can any of the company-specific risk be diversified away by investing in both DermTech 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 DermTech and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DermTech and Novartis AG ADR, you can compare the effects of market volatilities on DermTech 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 DermTech with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of DermTech and Novartis.

Diversification Opportunities for DermTech and Novartis

0.52

Correlation Coefficient

DermTech  Novartis

Very weak diversification

The 3 months correlation between DermTech and Novartis is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding DermTech and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR and DermTech 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 DermTech 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 ADR has no effect on the direction of DermTech i.e., DermTech and Novartis go up and down completely randomly.

Pair Corralation between DermTech and Novartis

Given the investment horizon of 90 days DermTech is expected to under-perform the Novartis. In addition to that, DermTech is 3.11 times more volatile than Novartis AG ADR. It trades about -0.09 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about 0.13 per unit of volatility. If you would invest  9,441  in Novartis AG ADR on February 2, 2024 and sell it today you would earn a total of  309.00  from holding Novartis AG ADR or generate 3.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

DermTech  vs.  Novartis AG ADR

DermTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DermTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Novartis AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Novartis is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with DermTech and Novartis

The main advantage of trading using opposite DermTech and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DermTech 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.

The idea behind DermTech and Novartis AG ADR 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.