Correlation Between NKT AS and Novo Nordisk

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

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

Diversification Opportunities for NKT AS and Novo Nordisk

0.47

Correlation Coefficient

NKT AS  Novo Nordisk

Very weak diversification

The 3 months correlation between NKT and Novo is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding NKT AS 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 NKT AS 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 NKT AS 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 NKT AS i.e., NKT AS and Novo Nordisk go up and down completely randomly.

Pair Corralation between NKT AS and Novo Nordisk

Assuming the 90 days trading horizon NKT AS is expected to generate 0.56 times more return on investment than Novo Nordisk. However, NKT AS is 1.79 times less risky than Novo Nordisk. It trades about -0.19 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.12 per unit of risk. If you would invest  64,750  in NKT AS on September 26, 2024 and sell it today you would lose (13,800) from holding NKT AS or give up 21.31% of portfolio value over 90 days.

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

NKT AS  vs.  Novo Nordisk AS

NKT AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NKT AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm 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. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with NKT AS and Novo Nordisk

The main advantage of trading using opposite NKT AS and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NKT AS 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 NKT AS 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.