Correlation Between Novartis and Amarin PLC

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

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

Diversification Opportunities for Novartis and Amarin PLC

0.65

Correlation Coefficient

Novartis  Amarin PLC

Poor diversification

The 3 months correlation between Novartis and Amarin is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Amarin PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amarin PLC 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 ADR are associated (or correlated) with Amarin PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amarin PLC has no effect on the direction of Novartis i.e., Novartis and Amarin PLC go up and down completely randomly.

Pair Corralation between Novartis and Amarin PLC

Considering the 90-day investment horizon Novartis is expected to generate 24.67 times less return on investment than Amarin PLC. But when comparing it to its historical volatility, Novartis AG ADR is 5.39 times less risky than Amarin PLC. It trades about 0.08 of its potential returns per unit of risk. Amarin PLC is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Amarin PLC on October 26, 2024 and sell it today you would earn a total of  19.00  from holding Amarin PLC or generate 42.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Novartis AG ADR  vs.  Amarin PLC

Novartis AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Amarin PLC

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Novartis and Amarin PLC

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

The idea behind Novartis AG ADR and Amarin PLC 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.