Correlation Between Novo Nordisk and Nuvalent

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

Diversification Opportunities for Novo Nordisk and Nuvalent

0.16

Correlation Coefficient

Novo Nordisk  Nuvalent

Average diversification

The 3 months correlation between Novo and Nuvalent is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent 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 Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Nuvalent go up and down completely randomly.

Pair Corralation between Novo Nordisk and Nuvalent

Assuming the 90 days horizon Novo Nordisk AS is expected to under-perform the Nuvalent. But the pink sheet apears to be less risky and, when comparing its historical volatility, Novo Nordisk AS is 1.71 times less risky than Nuvalent. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Nuvalent is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,496  in Nuvalent on September 5, 2024 and sell it today you would earn a total of  979.00  from holding Nuvalent or generate 11.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Novo Nordisk AS  vs.  Nuvalent

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

Nuvalent

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nuvalent are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Nuvalent disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novo Nordisk and Nuvalent

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

The idea behind Novo Nordisk AS and Nuvalent 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.