Correlation Between Novartis and Otsuka Holdings

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

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

Diversification Opportunities for Novartis and Otsuka Holdings

-0.61

Correlation Coefficient

Novartis  Otsuka Holdings

Excellent diversification

The 3 months correlation between Novartis and Otsuka is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Otsuka Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otsuka Holdings 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 Otsuka Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otsuka Holdings has no effect on the direction of Novartis i.e., Novartis and Otsuka Holdings go up and down completely randomly.

Pair Corralation between Novartis and Otsuka Holdings

Assuming the 90 days horizon Novartis AG is expected to generate 1.37 times more return on investment than Otsuka Holdings. However, Novartis is 1.37 times more volatile than Otsuka Holdings Co. It trades about 0.13 of its potential returns per unit of risk. Otsuka Holdings Co is currently generating about -0.01 per unit of risk. If you would invest  9,231  in Novartis AG on December 21, 2024 and sell it today you would earn a total of  1,555  from holding Novartis AG or generate 16.85% 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.  Otsuka Holdings Co

Novartis AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG are ranked lower than 9 (%) 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.

Otsuka Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Otsuka Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Otsuka Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Novartis and Otsuka Holdings

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

The idea behind Novartis AG and Otsuka Holdings Co 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 Stocks Directory module to find actively traded stocks across global markets.