Correlation Between Novo Nordisk and Carsales

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

Diversification Opportunities for Novo Nordisk and Carsales

-0.74

Correlation Coefficient

Novo Nordisk  Carsales

Pay attention - limited upside

The 3 months correlation between Novo and Carsales is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Carsales go up and down completely randomly.

Pair Corralation between Novo Nordisk and Carsales

Assuming the 90 days trading horizon Novo Nordisk AS is expected to under-perform the Carsales. In addition to that, Novo Nordisk is 1.3 times more volatile than CarsalesCom. It trades about -0.1 of its total potential returns per unit of risk. CarsalesCom is currently generating about 0.21 per unit of volatility. If you would invest  2,142  in CarsalesCom on September 5, 2024 and sell it today you would earn a total of  418.00  from holding CarsalesCom or generate 19.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Novo Nordisk AS  vs.  CarsalesCom

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 latest fragile 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.

CarsalesCom

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Carsales reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novo Nordisk and Carsales

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

The idea behind Novo Nordisk AS and CarsalesCom 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.