Correlation Between Novartis and Compagnie Financire

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

By analyzing existing cross correlation between Novartis AG and Compagnie Financire Richemont, you can compare the effects of market volatilities on Novartis and Compagnie Financire 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 Novartis with a short position of Compagnie Financire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Compagnie Financire.

Diversification Opportunities for Novartis and Compagnie Financire

-0.15

Correlation Coefficient

Novartis  Compagnie Financire

Good diversification

The 3 months correlation between Novartis and Compagnie is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financire and Novartis 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 Novartis AG are associated (or correlated) with Compagnie Financire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financire has no effect on the direction of Novartis i.e., Novartis and Compagnie Financire go up and down completely randomly.

Pair Corralation between Novartis and Compagnie Financire

Assuming the 90 days trading horizon Novartis AG is expected to generate 0.6 times more return on investment than Compagnie Financire. However, Novartis AG is 1.65 times less risky than Compagnie Financire. It trades about 0.04 of its potential returns per unit of risk. Compagnie Financire Richemont is currently generating about 0.02 per unit of risk. If you would invest  7,458  in Novartis AG on September 28, 2024 and sell it today you would earn a total of  1,310  from holding Novartis AG or generate 17.57% return on investment over 90 days.

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

Novartis AG  vs.  Compagnie Financire Richemont

Novartis AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Compagnie Financire

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Compagnie Financire is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Novartis and Compagnie Financire

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

The idea behind Novartis AG and Compagnie Financire Richemont 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.