Correlation Between Novartis and GSK Plc

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

Diversification Opportunities for Novartis and GSK Plc

0.84

Correlation Coefficient

Novartis  GSK Plc

Very poor diversification

The 3 months correlation between Novartis and GSK is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and GSK plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSK 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 GSK Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSK plc has no effect on the direction of Novartis i.e., Novartis and GSK Plc go up and down completely randomly.

Pair Corralation between Novartis and GSK Plc

Considering the 90-day investment horizon Novartis AG ADR is expected to under-perform the GSK Plc. But the stock apears to be less risky and, when comparing its historical volatility, Novartis AG ADR is 2.86 times less risky than GSK Plc. The stock trades about -0.28 of its potential returns per unit of risk. The GSK plc is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,730  in GSK plc on September 15, 2024 and sell it today you would lose (43.00) from holding GSK plc or give up 2.49% of portfolio value over 90 days.

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

Novartis AG ADR  vs.  GSK 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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

GSK plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GSK plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Novartis and GSK Plc

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

The idea behind Novartis AG ADR and GSK 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.