Correlation Between Novartis and Scilex Holding

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

Diversification Opportunities for Novartis and Scilex Holding

-0.02

Correlation Coefficient

Novartis  Scilex Holding

Good diversification

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

Pair Corralation between Novartis and Scilex Holding

Considering the 90-day investment horizon Novartis AG ADR is expected to under-perform the Scilex Holding. But the stock apears to be less risky and, when comparing its historical volatility, Novartis AG ADR is 19.16 times less risky than Scilex Holding. The stock trades about -0.2 of its potential returns per unit of risk. The Scilex Holding is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Scilex Holding on October 10, 2024 and sell it today you would lose (1.00) from holding Scilex Holding or give up 4.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Novartis AG ADR  vs.  Scilex Holding

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.

Scilex Holding

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Scilex Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Scilex Holding showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novartis and Scilex Holding

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

The idea behind Novartis AG ADR and Scilex Holding 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.