Correlation Between Innovent Biologics and Novo Nordisk

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

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

Diversification Opportunities for Innovent Biologics and Novo Nordisk

0.04

Correlation Coefficient

Innovent Biologics  Novo Nordisk

Significant diversification

The 3 months correlation between Innovent and Novo is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Innovent Biologics 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 Innovent Biologics 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 Innovent Biologics 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 Innovent Biologics i.e., Innovent Biologics and Novo Nordisk go up and down completely randomly.

Pair Corralation between Innovent Biologics and Novo Nordisk

Assuming the 90 days horizon Innovent Biologics is expected to generate 1.34 times more return on investment than Novo Nordisk. However, Innovent Biologics is 1.34 times more volatile than Novo Nordisk AS. It trades about 0.08 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.03 per unit of risk. If you would invest  458.00  in Innovent Biologics on December 20, 2024 and sell it today you would earn a total of  74.00  from holding Innovent Biologics or generate 16.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Innovent Biologics  vs.  Novo Nordisk AS

Innovent Biologics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Innovent Biologics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Innovent Biologics reported solid returns over the last few months and may actually be approaching a breakup point.

Novo Nordisk AS

Risk-Adjusted Performance

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 very healthy basic indicators, Novo Nordisk is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Innovent Biologics and Novo Nordisk

The main advantage of trading using opposite Innovent Biologics and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innovent Biologics 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 Innovent Biologics 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.