Correlation Between Novartis and Luye Pharma

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

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

Diversification Opportunities for Novartis and Luye Pharma

0.0

Correlation Coefficient

Novartis  Luye Pharma

Pay attention - limited upside

The 3 months correlation between Novartis and Luye is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Luye Pharma Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luye Pharma Group 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 Luye Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luye Pharma Group has no effect on the direction of Novartis i.e., Novartis and Luye Pharma go up and down completely randomly.

Pair Corralation between Novartis and Luye Pharma

If you would invest  9,155  in Novartis AG on December 20, 2024 and sell it today you would earn a total of  1,631  from holding Novartis AG or generate 17.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Novartis AG  vs.  Luye Pharma Group

Novartis AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Novartis reported solid returns over the last few months and may actually be approaching a breakup point.

Luye Pharma Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Luye Pharma Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Luye Pharma is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Novartis and Luye Pharma

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

The idea behind Novartis AG and Luye Pharma Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.