Correlation Between United States and Novartis

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Can any of the company-specific risk be diversified away by investing in both United States 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 United States and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United States Oil and Novartis AG ADR, you can compare the effects of market volatilities on United States 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 United States with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Novartis.

Diversification Opportunities for United States and Novartis

-0.47
  Correlation Coefficient

Very good diversification

The 3 months correlation between United and Novartis is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding United States Oil 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 United States 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 United States Oil 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 United States i.e., United States and Novartis go up and down completely randomly.

Pair Corralation between United States and Novartis

Considering the 90-day investment horizon United States Oil is expected to generate 1.44 times more return on investment than Novartis. However, United States is 1.44 times more volatile than Novartis AG ADR. It trades about 0.2 of its potential returns per unit of risk. Novartis AG ADR is currently generating about -0.2 per unit of risk. If you would invest  7,385  in United States Oil on December 29, 2023 and sell it today you would earn a total of  366.00  from holding United States Oil or generate 4.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

United States Oil  vs.  Novartis AG ADR

 Performance 
       Timeline  
United States Oil 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in United States Oil are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, United States displayed solid returns over the last few months and may actually be approaching a breakup point.
Novartis AG ADR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 current stock price uproar, may contribute to short-horizon losses for the private investors.

United States and Novartis Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with United States and Novartis

The main advantage of trading using opposite United States and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Oil 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.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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