Correlation Between NOVARTIS and Ardelyx

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

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

Diversification Opportunities for NOVARTIS and Ardelyx

0.68

Correlation Coefficient

NOVARTIS  Ardelyx

Poor diversification

The 3 months correlation between NOVARTIS and Ardelyx is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding NOVARTIS CAP P and Ardelyx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ardelyx and NOVARTIS 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 NOVARTIS CAP P are associated (or correlated) with Ardelyx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ardelyx has no effect on the direction of NOVARTIS i.e., NOVARTIS and Ardelyx go up and down completely randomly.

Pair Corralation between NOVARTIS and Ardelyx

Assuming the 90 days trading horizon NOVARTIS CAP P is expected to generate 13.44 times more return on investment than Ardelyx. However, NOVARTIS is 13.44 times more volatile than Ardelyx. It trades about 0.06 of its potential returns per unit of risk. Ardelyx is currently generating about 0.05 per unit of risk. If you would invest  9,919  in NOVARTIS CAP P on October 11, 2024 and sell it today you would lose (834.00) from holding NOVARTIS CAP P or give up 8.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.54%
Values	Daily Returns

NOVARTIS CAP P  vs.  Ardelyx

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 current stock price disturbance, may contribute to short-term losses for the investors.

Ardelyx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ardelyx has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Ardelyx is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NOVARTIS and Ardelyx

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

The idea behind NOVARTIS CAP P and Ardelyx 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..