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 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

0.29

Correlation Coefficient

Novartis  Scilex Holding

Modest diversification

The 3 months correlation between Novartis and Scilex is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG 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 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

Assuming the 90 days horizon Novartis AG is expected to generate 0.14 times more return on investment than Scilex Holding. However, Novartis AG is 7.26 times less risky than Scilex Holding. It trades about 0.04 of its potential returns per unit of risk. Scilex Holding is currently generating about -0.13 per unit of risk. If you would invest  9,780  in Novartis AG on October 25, 2024 and sell it today you would earn a total of  104.00  from holding Novartis AG or generate 1.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Novartis AG  vs.  Scilex Holding

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.

Scilex Holding

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Scilex Holding are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting 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 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.