Correlation Between Novartis and Gilead Sciences

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

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

Diversification Opportunities for Novartis and Gilead Sciences

-0.68

Correlation Coefficient

Novartis  Gilead Sciences

Excellent diversification

The 3 months correlation between Novartis and Gilead is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Novartis i.e., Novartis and Gilead Sciences go up and down completely randomly.

Pair Corralation between Novartis and Gilead Sciences

Assuming the 90 days horizon Novartis AG is expected to generate 1.53 times more return on investment than Gilead Sciences. However, Novartis is 1.53 times more volatile than Gilead Sciences. It trades about 0.09 of its potential returns per unit of risk. Gilead Sciences is currently generating about -0.03 per unit of risk. If you would invest  9,875  in Novartis AG on October 10, 2024 and sell it today you would earn a total of  280.00  from holding Novartis AG or generate 2.84% return on investment over 90 days.

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

Novartis AG  vs.  Gilead Sciences

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 nearly stable technical and fundamental indicators, Novartis is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gilead Sciences

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, Gilead Sciences may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Novartis and Gilead Sciences

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

The idea behind Novartis AG and Gilead Sciences 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.