Correlation Between Novartis and Grifols SA

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

Diversification Opportunities for Novartis and Grifols SA

-0.02

Correlation Coefficient

Novartis  Grifols SA

Good diversification

The 3 months correlation between Novartis and Grifols is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Grifols SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grifols SA ADR 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 Grifols SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grifols SA ADR has no effect on the direction of Novartis i.e., Novartis and Grifols SA go up and down completely randomly.

Pair Corralation between Novartis and Grifols SA

Considering the 90-day investment horizon Novartis is expected to generate 2.19 times less return on investment than Grifols SA. But when comparing it to its historical volatility, Novartis AG ADR is 2.42 times less risky than Grifols SA. It trades about 0.12 of its potential returns per unit of risk. Grifols SA ADR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  728.00  in Grifols SA ADR on December 4, 2024 and sell it today you would earn a total of  130.00  from holding Grifols SA ADR or generate 17.86% return on investment over 90 days.

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

Novartis AG ADR  vs.  Grifols SA ADR

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.

Grifols SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grifols SA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Grifols SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novartis and Grifols SA

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

The idea behind Novartis AG ADR and Grifols SA ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.