Correlation Between Novartis and Astellas Pharma

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

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

Diversification Opportunities for Novartis and Astellas Pharma

0.62

Correlation Coefficient

Novartis  Astellas Pharma

Poor diversification

The 3 months correlation between Novartis and Astellas is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Astellas Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Astellas Pharma and Novartis 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 Novartis AG are associated (or correlated) with Astellas Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Astellas Pharma has no effect on the direction of Novartis i.e., Novartis and Astellas Pharma go up and down completely randomly.

Pair Corralation between Novartis and Astellas Pharma

Assuming the 90 days horizon Novartis AG is expected to generate 0.6 times more return on investment than Astellas Pharma. However, Novartis AG is 1.67 times less risky than Astellas Pharma. It trades about -0.01 of its potential returns per unit of risk. Astellas Pharma is currently generating about -0.24 per unit of risk. If you would invest  9,651  in Novartis AG on January 30, 2024 and sell it today you would lose (51.00) from holding Novartis AG or give up 0.53% of portfolio value over 90 days.

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

Novartis AG  vs.  Astellas Pharma

Novartis AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Astellas Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Astellas Pharma 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 primary indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Novartis and Astellas Pharma

The main advantage of trading using opposite Novartis and Astellas Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Astellas Pharma 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 Astellas Pharma will offset losses from the drop in Astellas Pharma's long position.

The idea behind Novartis AG and Astellas Pharma 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.