Correlation Between Novartis and Agilent Technologies

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

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

Diversification Opportunities for Novartis and Agilent Technologies

-0.33

Correlation Coefficient

Novartis  Agilent Technologies

Very good diversification

The 3 months correlation between Novartis and Agilent is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Agilent Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies 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 ADR are associated (or correlated) with Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of Novartis i.e., Novartis and Agilent Technologies go up and down completely randomly.

Pair Corralation between Novartis and Agilent Technologies

Considering the 90-day investment horizon Novartis AG ADR is expected to generate 0.72 times more return on investment than Agilent Technologies. However, Novartis AG ADR is 1.39 times less risky than Agilent Technologies. It trades about 0.1 of its potential returns per unit of risk. Agilent Technologies is currently generating about -0.14 per unit of risk. If you would invest  9,673  in Novartis AG ADR on January 28, 2024 and sell it today you would earn a total of  233.00  from holding Novartis AG ADR or generate 2.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Novartis AG ADR  vs.  Agilent Technologies

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.

Agilent Technologies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Agilent Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Novartis and Agilent Technologies

The main advantage of trading using opposite Novartis and Agilent Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Agilent Technologies 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 Agilent Technologies will offset losses from the drop in Agilent Technologies' long position.

The idea behind Novartis AG ADR and Agilent Technologies 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.