Correlation Between Novartis and Amgen

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

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

Diversification Opportunities for Novartis and Amgen

0.9

Correlation Coefficient

Novartis  Amgen

Almost no diversification

The 3 months correlation between Novartis and Amgen is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen Inc 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 are associated (or correlated) with Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of Novartis i.e., Novartis and Amgen go up and down completely randomly.

Pair Corralation between Novartis and Amgen

Assuming the 90 days horizon Novartis AG is expected to generate 1.45 times more return on investment than Amgen. However, Novartis is 1.45 times more volatile than Amgen Inc. It trades about -0.05 of its potential returns per unit of risk. Amgen Inc is currently generating about -0.14 per unit of risk. If you would invest  10,818  in Novartis AG on October 25, 2024 and sell it today you would lose (934.00) from holding Novartis AG or give up 8.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

Novartis AG  vs.  Amgen Inc

Novartis AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Amgen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amgen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Novartis and Amgen

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

The idea behind Novartis AG and Amgen Inc 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.