Correlation Between Institute and Novo Nordisk

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

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

Diversification Opportunities for Institute and Novo Nordisk

0.24

Correlation Coefficient

Institute  Novo Nordisk

Modest diversification

The 3 months correlation between Institute and Novo is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Institute of Biomedical 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 Institute 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 Institute of Biomedical 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 Institute i.e., Institute and Novo Nordisk go up and down completely randomly.

Pair Corralation between Institute and Novo Nordisk

Given the investment horizon of 90 days Institute of Biomedical is expected to generate 4.68 times more return on investment than Novo Nordisk. However, Institute is 4.68 times more volatile than Novo Nordisk AS. It trades about 0.13 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  0.79  in Institute of Biomedical on December 20, 2024 and sell it today you would earn a total of  0.64  from holding Institute of Biomedical or generate 81.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Institute of Biomedical  vs.  Novo Nordisk AS

Institute of Biomedical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Institute of Biomedical are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Institute unveiled 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 Institute and Novo Nordisk

The main advantage of trading using opposite Institute and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Institute 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 Institute of Biomedical 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 Commodity Directory module to find actively traded commodities issued by global exchanges.