Correlation Between Astellas Pharma and Novartis

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

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

Diversification Opportunities for Astellas Pharma and Novartis

0.34

Correlation Coefficient

Astellas Pharma  Novartis

Weak diversification

The 3 months correlation between Astellas and Novartis is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Astellas Pharma 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 Astellas Pharma 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 Astellas Pharma 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 Astellas Pharma i.e., Astellas Pharma and Novartis go up and down completely randomly.

Pair Corralation between Astellas Pharma and Novartis

Assuming the 90 days horizon Astellas Pharma is expected to under-perform the Novartis. But the pink sheet apears to be less risky and, when comparing its historical volatility, Astellas Pharma is 1.22 times less risky than Novartis. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Novartis AG ADR is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  9,395  in Novartis AG ADR on December 29, 2024 and sell it today you would earn a total of  1,745  from holding Novartis AG ADR or generate 18.57% return on investment over 90 days.

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

Astellas Pharma  vs.  Novartis AG ADR

Astellas Pharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Astellas Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Astellas Pharma is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Novartis AG ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Novartis unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Astellas Pharma and Novartis

The main advantage of trading using opposite Astellas Pharma and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Astellas Pharma 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 Astellas Pharma 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.