Correlation Between Carnival and Novartis

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

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

Diversification Opportunities for Carnival and Novartis

0.53

Correlation Coefficient

Carnival  Novartis

Very weak diversification

The 3 months correlation between Carnival and Novartis is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Carnival 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 Carnival 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 Carnival 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 Carnival i.e., Carnival and Novartis go up and down completely randomly.

Pair Corralation between Carnival and Novartis

Considering the 90-day investment horizon Carnival is expected to generate 1.27 times less return on investment than Novartis. In addition to that, Carnival is 3.37 times more volatile than Novartis AG ADR. It trades about 0.01 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about 0.03 per unit of volatility. If you would invest  7,861  in Novartis AG ADR on January 18, 2024 and sell it today you would earn a total of  1,447  from holding Novartis AG ADR or generate 18.41% return on investment over 90 days.

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

Carnival  vs.  Novartis AG ADR

Carnival

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 weak 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.

Pair Trading with Carnival and Novartis

The main advantage of trading using opposite Carnival and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carnival 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 Carnival 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.