Correlation Between Gilead Sciences and Novartis

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Can any of the company-specific risk be diversified away by investing in both Gilead Sciences 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 Gilead Sciences and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gilead Sciences and Novartis AG ADR, you can compare the effects of market volatilities on Gilead Sciences 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 Gilead Sciences with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gilead Sciences and Novartis.

Diversification Opportunities for Gilead Sciences and Novartis

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Gilead and Novartis is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences 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 Gilead Sciences 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 Gilead Sciences 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 Gilead Sciences i.e., Gilead Sciences and Novartis go up and down completely randomly.

Pair Corralation between Gilead Sciences and Novartis

Given the investment horizon of 90 days Gilead Sciences is expected to generate 1.04 times less return on investment than Novartis. In addition to that, Gilead Sciences is 1.29 times more volatile than Novartis AG ADR. It trades about 0.04 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about 0.06 per unit of volatility. If you would invest  7,274  in Novartis AG ADR on December 30, 2023 and sell it today you would earn a total of  2,399  from holding Novartis AG ADR or generate 32.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Gilead Sciences  vs.  Novartis AG ADR

 Performance 
       Timeline  
Gilead Sciences 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Gilead Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Novartis AG ADR 

Risk-Adjusted Performance

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Low
 
High
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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Gilead Sciences and Novartis Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Gilead Sciences and Novartis

The main advantage of trading using opposite Gilead Sciences and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gilead Sciences 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 Gilead Sciences 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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