Correlation Between Exxon and Novartis
Can any of the company-specific risk be diversified away by investing in both Exxon 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 Exxon and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and Novartis AG ADR, you can compare the effects of market volatilities on Exxon 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 Exxon with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Novartis.
Diversification Opportunities for Exxon and Novartis
Pay attention - limited upside
The 3 months correlation between Exxon and Novartis is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp 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 Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Novartis go up and down completely randomly.
Pair Corralation between Exxon and Novartis
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.84 times more return on investment than Novartis. However, Exxon Mobil Corp is 1.2 times less risky than Novartis. It trades about 0.29 of its potential returns per unit of risk. Novartis AG ADR is currently generating about -0.06 per unit of risk. If you would invest 10,218 in Exxon Mobil Corp on January 27, 2024 and sell it today you would earn a total of 1,915 from holding Exxon Mobil Corp or generate 18.74% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Exxon Mobil Corp vs. Novartis AG ADR
Performance |
Timeline |
Exxon Mobil Corp |
Novartis AG ADR |
Exxon and Novartis Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Exxon and Novartis
The main advantage of trading using opposite Exxon and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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 Exxon Mobil Corp 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.Novartis vs. Shuttle Pharmaceuticals | Novartis vs. Lifecore Biomedical | Novartis vs. Lucy Scientific Discovery |
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.
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