Correlation Between Novartis and Chugai Pharmaceutical

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

Diversification Opportunities for Novartis and Chugai Pharmaceutical

0.72

Correlation Coefficient

Novartis  Chugai Pharmaceutical

Poor diversification

The 3 months correlation between Novartis and Chugai is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Chugai Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chugai Pharmaceutical 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 Chugai Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chugai Pharmaceutical has no effect on the direction of Novartis i.e., Novartis and Chugai Pharmaceutical go up and down completely randomly.

Pair Corralation between Novartis and Chugai Pharmaceutical

Considering the 90-day investment horizon Novartis is expected to generate 2.42 times less return on investment than Chugai Pharmaceutical. But when comparing it to its historical volatility, Novartis AG ADR is 1.56 times less risky than Chugai Pharmaceutical. It trades about 0.19 of its potential returns per unit of risk. Chugai Pharmaceutical Co is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,180  in Chugai Pharmaceutical Co on December 5, 2024 and sell it today you would earn a total of  309.00  from holding Chugai Pharmaceutical Co or generate 14.17% return on investment over 90 days.

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

Novartis AG ADR  vs.  Chugai Pharmaceutical Co

Novartis AG ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Novartis may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Chugai Pharmaceutical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chugai Pharmaceutical Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Chugai Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Novartis and Chugai Pharmaceutical

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

The idea behind Novartis AG ADR and Chugai Pharmaceutical Co 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.