Correlation Between Novozymes and Sika AG

Can any of the company-specific risk be diversified away by investing in both Novozymes and Sika AG 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 and Sika AG 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 Sika AG ADR, you can compare the effects of market volatilities on Novozymes and Sika AG 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 with a short position of Sika AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novozymes and Sika AG.

Diversification Opportunities for Novozymes and Sika AG

0.91

Correlation Coefficient

Novozymes  Sika AG

Almost no diversification

The 3 months correlation between Novozymes and Sika is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Novozymes AS B and Sika AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sika AG ADR and Novozymes 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 Sika AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sika AG ADR has no effect on the direction of Novozymes i.e., Novozymes and Sika AG go up and down completely randomly.

Pair Corralation between Novozymes and Sika AG

Assuming the 90 days horizon Novozymes AS B is expected to under-perform the Sika AG. In addition to that, Novozymes is 2.09 times more volatile than Sika AG ADR. It trades about -0.11 of its total potential returns per unit of risk. Sika AG ADR is currently generating about -0.2 per unit of volatility. If you would invest  3,100  in Sika AG ADR on September 5, 2024 and sell it today you would lose (479.00) from holding Sika AG ADR or give up 15.45% of portfolio value over 90 days.

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

Novozymes AS B  vs.  Sika AG ADR

Novozymes AS B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novozymes AS B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sika AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sika AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Novozymes and Sika AG

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

The idea behind Novozymes AS B and Sika AG 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.