Correlation Between Novartis and Sika AG

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

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

Diversification Opportunities for Novartis and Sika AG

0.87

Correlation Coefficient

Novartis  Sika AG

Very poor diversification

The 3 months correlation between Novartis and Sika is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Sika AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG 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 Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG has no effect on the direction of Novartis i.e., Novartis and Sika AG go up and down completely randomly.

Pair Corralation between Novartis and Sika AG

Assuming the 90 days trading horizon Novartis is expected to generate 1.75 times less return on investment than Sika AG. But when comparing it to its historical volatility, Novartis AG is 1.06 times less risky than Sika AG. It trades about 0.24 of its potential returns per unit of risk. Sika AG is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  21,320  in Sika AG on October 21, 2024 and sell it today you would earn a total of  1,140  from holding Sika AG or generate 5.35% return on investment over 90 days.

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

Novartis AG  vs.  Sika AG

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.

Sika AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sika 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.

Pair Trading with Novartis and Sika AG

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

The idea behind Novartis AG and Sika AG 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.