Correlation Between Amgen and Novartis
Can any of the company-specific risk be diversified away by investing in both Amgen 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 Amgen and Novartis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amgen Inc and Novartis AG ADR, you can compare the effects of market volatilities on Amgen 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 Amgen with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amgen and Novartis.
Diversification Opportunities for Amgen and Novartis
Poor diversification
The 3 months correlation between Amgen and Novartis is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR and Amgen 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 Amgen Inc 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 AG ADR has no effect on the direction of Amgen i.e., Amgen and Novartis go up and down completely randomly.
Pair Corralation between Amgen and Novartis
Given the investment horizon of 90 days Amgen Inc is expected to under-perform the Novartis. But the stock apears to be less risky and, when comparing its historical volatility, Amgen Inc is 1.01 times less risky than Novartis. The stock trades about -0.12 of its potential returns per unit of risk. The Novartis AG ADR is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 9,527 in Novartis AG ADR on January 26, 2024 and sell it today you would earn a total of 308.00 from holding Novartis AG ADR or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Amgen Inc vs. Novartis AG ADR
Performance |
| Timeline |
| Amgen Inc |
| Novartis AG ADR |
Amgen and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Amgen and Novartis
The main advantage of trading using opposite Amgen and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amgen 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' long position.The idea behind Amgen Inc and Novartis AG 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.| Novartis vs. AstraZeneca PLC ADR | Novartis vs. GlaxoSmithKline PLC ADR | Novartis vs. Roche Holding Ltd | Novartis vs. Bristol Myers Squibb |
Check out your portfolio center.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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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