Correlation Between Novartis and Daiichi Sankyo

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

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

Diversification Opportunities for Novartis and Daiichi Sankyo

0.14

Correlation Coefficient

Novartis  Daiichi Sankyo

Average diversification

The 3 months correlation between Novartis and Daiichi is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Daiichi Sankyo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiichi Sankyo 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 Daiichi Sankyo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiichi Sankyo has no effect on the direction of Novartis i.e., Novartis and Daiichi Sankyo go up and down completely randomly.

Pair Corralation between Novartis and Daiichi Sankyo

Assuming the 90 days horizon Novartis AG is expected to under-perform the Daiichi Sankyo. But the pink sheet apears to be less risky and, when comparing its historical volatility, Novartis AG is 1.44 times less risky than Daiichi Sankyo. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Daiichi Sankyo is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,144  in Daiichi Sankyo on January 30, 2024 and sell it today you would earn a total of  41.00  from holding Daiichi Sankyo or generate 1.3% return on investment over 90 days.

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

Novartis AG  vs.  Daiichi Sankyo

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 uncertain 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.

Daiichi Sankyo

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Daiichi Sankyo are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Daiichi Sankyo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novartis and Daiichi Sankyo

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

The idea behind Novartis AG and Daiichi Sankyo 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.