Correlation Between NOVARTIS and WPP PLC

Can any of the company-specific risk be diversified away by investing in both NOVARTIS and WPP PLC 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 WPP PLC 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 WPP PLC ADR, you can compare the effects of market volatilities on NOVARTIS and WPP PLC 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 WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of NOVARTIS and WPP PLC.

Diversification Opportunities for NOVARTIS and WPP PLC

-0.64

Correlation Coefficient

NOVARTIS  WPP PLC

Excellent diversification

The 3 months correlation between NOVARTIS and WPP is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding NOVARTIS CAP P and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR 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 WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of NOVARTIS i.e., NOVARTIS and WPP PLC go up and down completely randomly.

Pair Corralation between NOVARTIS and WPP PLC

Assuming the 90 days trading horizon NOVARTIS is expected to generate 1.59 times less return on investment than WPP PLC. But when comparing it to its historical volatility, NOVARTIS CAP P is 1.32 times less risky than WPP PLC. It trades about 0.24 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  5,216  in WPP PLC ADR on September 14, 2024 and sell it today you would earn a total of  384.00  from holding WPP PLC ADR or generate 7.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

NOVARTIS CAP P  vs.  WPP PLC ADR

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.

WPP PLC ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NOVARTIS and WPP PLC

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

The idea behind NOVARTIS CAP P and WPP PLC 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.