Correlation Between KB Financial and Novartis

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

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

Diversification Opportunities for KB Financial and Novartis

-0.69

Correlation Coefficient

KB Financial  Novartis

Excellent diversification

The 3 months correlation between KB Financial and Novartis is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding KB Financial Group 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 KB Financial 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 KB Financial Group 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 KB Financial i.e., KB Financial and Novartis go up and down completely randomly.

Pair Corralation between KB Financial and Novartis

Allowing for the 90-day total investment horizon KB Financial Group is expected to under-perform the Novartis. In addition to that, KB Financial is 1.11 times more volatile than Novartis AG ADR. It trades about -0.06 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about 0.23 per unit of volatility. If you would invest  9,395  in Novartis AG ADR on December 30, 2024 and sell it today you would earn a total of  1,862  from holding Novartis AG ADR or generate 19.82% return on investment over 90 days.

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

KB Financial Group  vs.  Novartis AG ADR

KB Financial Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days KB Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, KB Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 17 (%) 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 KB Financial and Novartis

The main advantage of trading using opposite KB Financial and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Financial 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 KB Financial Group 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..