Correlation Between Novo Nordisk and Defence Therapeutics

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

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

Diversification Opportunities for Novo Nordisk and Defence Therapeutics

-0.47

Correlation Coefficient

Novo Nordisk  Defence Therapeutics

Very good diversification

The 3 months correlation between Novo and Defence is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics and Novo Nordisk 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 Novo Nordisk AS are associated (or correlated) with Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Defence Therapeutics go up and down completely randomly.

Pair Corralation between Novo Nordisk and Defence Therapeutics

Assuming the 90 days horizon Novo Nordisk AS is expected to under-perform the Defence Therapeutics. But the pink sheet apears to be less risky and, when comparing its historical volatility, Novo Nordisk AS is 4.23 times less risky than Defence Therapeutics. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Defence Therapeutics is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  27.00  in Defence Therapeutics on December 21, 2024 and sell it today you would earn a total of  73.00  from holding Defence Therapeutics or generate 270.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.16%
Values	Daily Returns

Novo Nordisk AS  vs.  Defence Therapeutics

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. Despite latest conflicting performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Defence Therapeutics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Defence Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novo Nordisk and Defence Therapeutics

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

The idea behind Novo Nordisk AS and Defence Therapeutics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.