Correlation Between Novozymes A/S and Givaudan

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

By analyzing existing cross correlation between Novozymes AS B and Givaudan SA ADR, you can compare the effects of market volatilities on Novozymes A/S and Givaudan 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 Novozymes A/S with a short position of Givaudan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novozymes A/S and Givaudan.

Diversification Opportunities for Novozymes A/S and Givaudan

0.52

Correlation Coefficient

Novozymes A/S  Givaudan

Very weak diversification

The 3 months correlation between Novozymes and Givaudan is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Novozymes AS B and Givaudan SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Givaudan SA ADR and Novozymes A/S 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 Novozymes AS B are associated (or correlated) with Givaudan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Givaudan SA ADR has no effect on the direction of Novozymes A/S i.e., Novozymes A/S and Givaudan go up and down completely randomly.

Pair Corralation between Novozymes A/S and Givaudan

Assuming the 90 days horizon Novozymes AS B is expected to generate 1.58 times more return on investment than Givaudan. However, Novozymes A/S is 1.58 times more volatile than Givaudan SA ADR. It trades about 0.05 of its potential returns per unit of risk. Givaudan SA ADR is currently generating about 0.03 per unit of risk. If you would invest  5,714  in Novozymes AS B on December 2, 2024 and sell it today you would earn a total of  351.00  from holding Novozymes AS B or generate 6.14% return on investment over 90 days.

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

Novozymes AS B  vs.  Givaudan SA ADR

Novozymes AS B

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Novozymes AS B are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Novozymes A/S may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Givaudan SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Givaudan SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Givaudan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Novozymes A/S and Givaudan

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

The idea behind Novozymes AS B and Givaudan SA ADR 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.