Correlation Between Pfizer and Novartis
Can any of the company-specific risk be diversified away by investing in both Pfizer 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 Pfizer and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pfizer Inc and Novartis AG ADR, you can compare the effects of market volatilities on Pfizer 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 Pfizer with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and Novartis.
Diversification Opportunities for Pfizer and Novartis
Very weak diversification
The 3 months correlation between Pfizer and Novartis is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc 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 Pfizer 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 Pfizer Inc 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 Pfizer i.e., Pfizer and Novartis go up and down completely randomly.
Pair Corralation between Pfizer and Novartis
Considering the 90-day investment horizon Pfizer Inc is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, Pfizer Inc is 1.02 times less risky than Novartis. The stock trades about -0.28 of its potential returns per unit of risk. The Novartis AG ADR is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest 9,608 in Novartis AG ADR on January 21, 2024 and sell it today you would lose (172.00) from holding Novartis AG ADR or give up 1.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Pfizer Inc vs. Novartis AG ADR
Performance |
| Timeline |
| Pfizer Inc |
| Novartis AG ADR |
Pfizer and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pfizer and Novartis
The main advantage of trading using opposite Pfizer and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer 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.| Pfizer vs. Alkermes Plc | Pfizer vs. Ironwood Pharmaceuticals | Pfizer vs. Deciphera Pharmaceuticals LLC | Pfizer vs. Eagle Pharmaceuticals |
| Novartis vs. Alkermes Plc | Novartis vs. Ironwood Pharmaceuticals | Novartis vs. Deciphera Pharmaceuticals LLC | Novartis vs. Eagle Pharmaceuticals |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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