Correlation Between Sanofi ADR and Novartis

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

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

Diversification Opportunities for Sanofi ADR and Novartis

0.72

Correlation Coefficient

Sanofi ADR  Novartis

Poor diversification

The 3 months correlation between Sanofi and Novartis is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sanofi ADR and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and Sanofi ADR 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 Sanofi ADR 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 Sanofi ADR i.e., Sanofi ADR and Novartis go up and down completely randomly.

Pair Corralation between Sanofi ADR and Novartis

Considering the 90-day investment horizon Sanofi ADR is expected to generate 2.2 times less return on investment than Novartis. But when comparing it to its historical volatility, Sanofi ADR is 1.65 times less risky than Novartis. It trades about 0.14 of its potential returns per unit of risk. Novartis AG is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  10,265  in Novartis AG on November 29, 2024 and sell it today you would earn a total of  851.00  from holding Novartis AG or generate 8.29% return on investment over 90 days.

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

Sanofi ADR  vs.  Novartis AG

Sanofi ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sanofi ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Sanofi ADR showed solid returns over the last few months and may actually be approaching a breakup point.

Novartis AG

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Novartis AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Novartis may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Sanofi ADR and Novartis

The main advantage of trading using opposite Sanofi ADR and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanofi ADR 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 Sanofi ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.