Correlation Between Vertex Pharmaceuticals and Novo Nordisk

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

By analyzing existing cross correlation between Vertex Pharmaceuticals Incorporated and Novo Nordisk AS, you can compare the effects of market volatilities on Vertex Pharmaceuticals and Novo Nordisk 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 Vertex Pharmaceuticals with a short position of Novo Nordisk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vertex Pharmaceuticals and Novo Nordisk.

Diversification Opportunities for Vertex Pharmaceuticals and Novo Nordisk

0.34

Correlation Coefficient

Vertex Pharmaceuticals  Novo Nordisk

Weak diversification

The 3 months correlation between Vertex and Novo is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vertex Pharmaceuticals Incorpo and Novo Nordisk AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novo Nordisk AS and Vertex Pharmaceuticals 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 Vertex Pharmaceuticals Incorporated are associated (or correlated) with Novo Nordisk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novo Nordisk AS has no effect on the direction of Vertex Pharmaceuticals i.e., Vertex Pharmaceuticals and Novo Nordisk go up and down completely randomly.

Pair Corralation between Vertex Pharmaceuticals and Novo Nordisk

Assuming the 90 days trading horizon Vertex Pharmaceuticals Incorporated is expected to generate 0.71 times more return on investment than Novo Nordisk. However, Vertex Pharmaceuticals Incorporated is 1.41 times less risky than Novo Nordisk. It trades about -0.17 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.2 per unit of risk. If you would invest  69,651  in Vertex Pharmaceuticals Incorporated on October 4, 2024 and sell it today you would lose (7,903) from holding Vertex Pharmaceuticals Incorporated or give up 11.35% of portfolio value over 90 days.

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

Vertex Pharmaceuticals Incorpo  vs.  Novo Nordisk AS

Vertex Pharmaceuticals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vertex Pharmaceuticals Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Novo Nordisk AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Nordisk AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Vertex Pharmaceuticals and Novo Nordisk

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

The idea behind Vertex Pharmaceuticals Incorporated and Novo Nordisk AS 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.