Correlation Between Novo Nordisk and Innovation1 Biotech

Can any of the company-specific risk be diversified away by investing in both Novo Nordisk and Innovation1 Biotech 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 Innovation1 Biotech 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 Innovation1 Biotech, you can compare the effects of market volatilities on Novo Nordisk and Innovation1 Biotech 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 Innovation1 Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novo Nordisk and Innovation1 Biotech.

Diversification Opportunities for Novo Nordisk and Innovation1 Biotech

0.0

Correlation Coefficient

Novo Nordisk  Innovation1 Biotech

Pay attention - limited upside

The 3 months correlation between Novo and Innovation1 is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Innovation1 Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovation1 Biotech 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 Innovation1 Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovation1 Biotech has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Innovation1 Biotech go up and down completely randomly.

Pair Corralation between Novo Nordisk and Innovation1 Biotech

Assuming the 90 days horizon Novo Nordisk is expected to generate 50.66 times less return on investment than Innovation1 Biotech. But when comparing it to its historical volatility, Novo Nordisk AS is 25.48 times less risky than Innovation1 Biotech. It trades about 0.03 of its potential returns per unit of risk. Innovation1 Biotech is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10.00  in Innovation1 Biotech on October 11, 2024 and sell it today you would lose (9.90) from holding Innovation1 Biotech or give up 99.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Novo Nordisk AS  vs.  Innovation1 Biotech

Novo Nordisk AS

Risk-Adjusted Performance

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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 conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Innovation1 Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovation1 Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Innovation1 Biotech is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Novo Nordisk and Innovation1 Biotech

The main advantage of trading using opposite Novo Nordisk and Innovation1 Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novo Nordisk position performs unexpectedly, Innovation1 Biotech 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 Innovation1 Biotech will offset losses from the drop in Innovation1 Biotech's long position.

The idea behind Novo Nordisk AS and Innovation1 Biotech 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.