Correlation Between NOVARTIS and Ross Stores

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

By analyzing existing cross correlation between NOVARTIS CAPITAL P and Ross Stores, you can compare the effects of market volatilities on NOVARTIS and Ross Stores 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 Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of NOVARTIS and Ross Stores.

Diversification Opportunities for NOVARTIS and Ross Stores

-0.59

Correlation Coefficient

NOVARTIS  Ross Stores

Excellent diversification

The 3 months correlation between NOVARTIS and Ross is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding NOVARTIS CAPITAL P and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 CAPITAL P are associated (or correlated) with Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of NOVARTIS i.e., NOVARTIS and Ross Stores go up and down completely randomly.

Pair Corralation between NOVARTIS and Ross Stores

Assuming the 90 days trading horizon NOVARTIS CAPITAL P is expected to generate 0.12 times more return on investment than Ross Stores. However, NOVARTIS CAPITAL P is 8.46 times less risky than Ross Stores. It trades about -0.01 of its potential returns per unit of risk. Ross Stores is currently generating about -0.15 per unit of risk. If you would invest  9,521  in NOVARTIS CAPITAL P on December 2, 2024 and sell it today you would lose (6.00) from holding NOVARTIS CAPITAL P or give up 0.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

NOVARTIS CAPITAL P  vs.  Ross Stores

NOVARTIS CAPITAL P

Risk-Adjusted Performance

Very Weak

Over the last 90 days NOVARTIS CAPITAL 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Ross Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with NOVARTIS and Ross Stores

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

The idea behind NOVARTIS CAPITAL P and Ross Stores 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.