Correlation Between Novartis and AstraZeneca PLC

Can any of the company-specific risk be diversified away by investing in both Novartis and AstraZeneca PLC 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 AstraZeneca PLC 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 AstraZeneca PLC ADR, you can compare the effects of market volatilities on Novartis and AstraZeneca 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 AstraZeneca PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and AstraZeneca PLC.

Diversification Opportunities for Novartis and AstraZeneca PLC

-0.09

Correlation Coefficient

Novartis  AstraZeneca PLC

Good diversification

The 3 months correlation between Novartis and AstraZeneca is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and AstraZeneca PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AstraZeneca PLC ADR 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 AstraZeneca PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AstraZeneca PLC ADR has no effect on the direction of Novartis i.e., Novartis and AstraZeneca PLC go up and down completely randomly.

Pair Corralation between Novartis and AstraZeneca PLC

Considering the 90-day investment horizon Novartis AG ADR is expected to under-perform the AstraZeneca PLC. In addition to that, Novartis is 1.03 times more volatile than AstraZeneca PLC ADR. It trades about -0.16 of its total potential returns per unit of risk. AstraZeneca PLC ADR is currently generating about 0.2 per unit of volatility. If you would invest  6,586  in AstraZeneca PLC ADR on January 19, 2024 and sell it today you would earn a total of  267.00  from holding AstraZeneca PLC ADR or generate 4.05% 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.  AstraZeneca PLC ADR

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 latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

AstraZeneca PLC ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AstraZeneca PLC ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, AstraZeneca PLC is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Novartis and AstraZeneca PLC

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

The idea behind Novartis AG ADR and AstraZeneca PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.