Correlation Between Novo Nordisk and LUXOR-B

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

Diversification Opportunities for Novo Nordisk and LUXOR-B

-0.59

Correlation Coefficient

Novo Nordisk  LUXOR-B

Excellent diversification

The 3 months correlation between Novo and LUXOR-B is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Investeringsselskabet Luxor AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investeringsselskabet 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 LUXOR-B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investeringsselskabet has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and LUXOR-B go up and down completely randomly.

Pair Corralation between Novo Nordisk and LUXOR-B

Assuming the 90 days trading horizon Novo Nordisk AS is expected to under-perform the LUXOR-B. In addition to that, Novo Nordisk is 2.38 times more volatile than Investeringsselskabet Luxor AS. It trades about -0.18 of its total potential returns per unit of risk. Investeringsselskabet Luxor AS is currently generating about 0.4 per unit of volatility. If you would invest  56,000  in Investeringsselskabet Luxor AS on October 5, 2024 and sell it today you would earn a total of  9,500  from holding Investeringsselskabet Luxor AS or generate 16.96% return on investment over 90 days.

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

Novo Nordisk AS  vs.  Investeringsselskabet Luxor AS

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 unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Investeringsselskabet

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Investeringsselskabet Luxor AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, LUXOR-B sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novo Nordisk and LUXOR-B

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

The idea behind Novo Nordisk AS and Investeringsselskabet Luxor AS 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.