Correlation Between CSL and Novo Nordisk

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

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

Diversification Opportunities for CSL and Novo Nordisk

0.72

Correlation Coefficient

CSL  Novo Nordisk

Poor diversification

The 3 months correlation between CSL and Novo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding CSL and Novo Nordisk AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novo Nordisk AS and CSL 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 CSL are associated (or correlated) with Novo Nordisk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novo Nordisk AS has no effect on the direction of CSL i.e., CSL and Novo Nordisk go up and down completely randomly.

Pair Corralation between CSL and Novo Nordisk

Assuming the 90 days horizon CSL is expected to generate 0.46 times more return on investment than Novo Nordisk. However, CSL is 2.18 times less risky than Novo Nordisk. It trades about -0.25 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.19 per unit of risk. If you would invest  8,875  in CSL on October 25, 2024 and sell it today you would lose (416.00) from holding CSL or give up 4.69% of portfolio value over 90 days.

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

CSL  vs.  Novo Nordisk AS

CSL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Novo Nordisk AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Nordisk AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating 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.

Pair Trading with CSL and Novo Nordisk

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

The idea behind CSL and Novo Nordisk AS 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.