Correlation Between AstraZeneca PLC and Novartis

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

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

Diversification Opportunities for AstraZeneca PLC and Novartis

0.76

Correlation Coefficient

AstraZeneca PLC  Novartis

Poor diversification

The 3 months correlation between AstraZeneca and Novartis is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding AstraZeneca PLC ADR and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and AstraZeneca PLC 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 AstraZeneca PLC 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 has no effect on the direction of AstraZeneca PLC i.e., AstraZeneca PLC and Novartis go up and down completely randomly.

Pair Corralation between AstraZeneca PLC and Novartis

Considering the 90-day investment horizon AstraZeneca PLC ADR is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, AstraZeneca PLC ADR is 1.33 times less risky than Novartis. The stock trades about -0.11 of its potential returns per unit of risk. The Novartis AG is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,875  in Novartis AG on October 10, 2024 and sell it today you would earn a total of  280.00  from holding Novartis AG or generate 2.84% return on investment over 90 days.

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

AstraZeneca PLC ADR  vs.  Novartis AG

AstraZeneca PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AstraZeneca PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 nearly stable technical and fundamental indicators, Novartis is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AstraZeneca PLC and Novartis

The main advantage of trading using opposite AstraZeneca PLC and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AstraZeneca PLC 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 AstraZeneca PLC ADR and Novartis AG 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.