Correlation Between Evotec SE and Novartis

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

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

Diversification Opportunities for Evotec SE and Novartis

-0.02

Correlation Coefficient

Evotec SE  Novartis

Good diversification

The 3 months correlation between Evotec and Novartis is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Evotec SE ADR 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 Evotec SE 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 Evotec SE ADR 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 Evotec SE i.e., Evotec SE and Novartis go up and down completely randomly.

Pair Corralation between Evotec SE and Novartis

Considering the 90-day investment horizon Evotec SE ADR is expected to under-perform the Novartis. In addition to that, Evotec SE is 6.34 times more volatile than Novartis AG ADR. It trades about -0.17 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about 0.13 per unit of volatility. If you would invest  9,437  in Novartis AG ADR on February 3, 2024 and sell it today you would earn a total of  297.00  from holding Novartis AG ADR or generate 3.15% return on investment over 90 days.

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

Evotec SE ADR  vs.  Novartis AG ADR

Evotec SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evotec SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm 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 comparatively stable basic indicators, Novartis is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Evotec SE and Novartis

The main advantage of trading using opposite Evotec SE and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evotec SE 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 Evotec SE ADR 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.