Correlation Between Roche Holding and Novartis

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

By analyzing existing cross correlation between Roche Holding AG and Novartis AG, you can compare the effects of market volatilities on Roche Holding and Novartis 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 Roche Holding with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roche Holding and Novartis.

Diversification Opportunities for Roche Holding and Novartis

0.9

Correlation Coefficient

Roche Holding  Novartis

Almost no diversification

The 3 months correlation between Roche and Novartis is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding AG and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Roche Holding 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 Roche Holding AG are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of Roche Holding i.e., Roche Holding and Novartis go up and down completely randomly.

Pair Corralation between Roche Holding and Novartis

Assuming the 90 days horizon Roche Holding AG is expected to generate 1.19 times more return on investment than Novartis. However, Roche Holding is 1.19 times more volatile than Novartis AG. It trades about 0.09 of its potential returns per unit of risk. Novartis AG is currently generating about 0.1 per unit of risk. If you would invest  30,118  in Roche Holding AG on December 30, 2024 and sell it today you would earn a total of  4,882  from holding Roche Holding AG or generate 16.21% return on investment over 90 days.

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

Roche Holding AG  vs.  Novartis AG

Roche Holding AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Roche Holding AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Roche Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Novartis AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG are ranked lower than 7 (%) 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.

Pair Trading with Roche Holding and Novartis

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

The idea behind Roche Holding AG and Novartis AG 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.