Correlation Between Sapiens International and NOVARTIS

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

By analyzing existing cross correlation between Sapiens International and NOVARTIS CAP P, you can compare the effects of market volatilities on Sapiens International 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 Sapiens International with a short position of NOVARTIS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sapiens International and NOVARTIS.

Diversification Opportunities for Sapiens International and NOVARTIS

0.61

Correlation Coefficient

Sapiens International  NOVARTIS

Poor diversification

The 3 months correlation between Sapiens and NOVARTIS is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sapiens International and NOVARTIS CAP P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVARTIS CAP P and Sapiens International 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 Sapiens International 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 CAP P has no effect on the direction of Sapiens International i.e., Sapiens International and NOVARTIS go up and down completely randomly.

Pair Corralation between Sapiens International and NOVARTIS

Given the investment horizon of 90 days Sapiens International is expected to under-perform the NOVARTIS. In addition to that, Sapiens International is 3.55 times more volatile than NOVARTIS CAP P. It trades about -0.12 of its total potential returns per unit of risk. NOVARTIS CAP P is currently generating about -0.03 per unit of volatility. If you would invest  9,295  in NOVARTIS CAP P on October 10, 2024 and sell it today you would lose (210.00) from holding NOVARTIS CAP P or give up 2.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.8%
Values	Daily Returns

Sapiens International  vs.  NOVARTIS CAP P

Sapiens International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapiens International 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 comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NOVARTIS CAP P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NOVARTIS CAP P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NOVARTIS is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sapiens International and NOVARTIS

The main advantage of trading using opposite Sapiens International and NOVARTIS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sapiens International 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's long position.

The idea behind Sapiens International and NOVARTIS CAP P 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.