Correlation Between Novo Nordisk and Innovent Biologics

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

Diversification Opportunities for Novo Nordisk and Innovent Biologics

0.04

Correlation Coefficient

Novo Nordisk  Innovent Biologics

Significant diversification

The 3 months correlation between Novo and Innovent is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Innovent Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovent Biologics 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 Innovent Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovent Biologics has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Innovent Biologics go up and down completely randomly.

Pair Corralation between Novo Nordisk and Innovent Biologics

Considering the 90-day investment horizon Novo Nordisk AS is expected to under-perform the Innovent Biologics. But the stock apears to be less risky and, when comparing its historical volatility, Novo Nordisk AS is 1.34 times less risky than Innovent Biologics. The stock trades about -0.03 of its potential returns per unit of risk. The Innovent Biologics is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  458.00  in Innovent Biologics on December 20, 2024 and sell it today you would earn a total of  74.00  from holding Innovent Biologics or generate 16.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Novo Nordisk AS  vs.  Innovent Biologics

Novo Nordisk AS

Risk-Adjusted Performance

Very Weak

Over the last 90 days Novo Nordisk AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Novo Nordisk is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Innovent Biologics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Innovent Biologics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Innovent Biologics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novo Nordisk and Innovent Biologics

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

The idea behind Novo Nordisk AS and Innovent Biologics 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.