Correlation Between Novartis and GlaxoSmithKline PLC
Can any of the company-specific risk be diversified away by investing in both Novartis and GlaxoSmithKline 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 GlaxoSmithKline PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG ADR and GlaxoSmithKline PLC ADR, you can compare the effects of market volatilities on Novartis and GlaxoSmithKline 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 GlaxoSmithKline PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and GlaxoSmithKline PLC.
Diversification Opportunities for Novartis and GlaxoSmithKline PLC
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Novartis and GlaxoSmithKline is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and GlaxoSmithKline PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GlaxoSmithKline 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 AG ADR are associated (or correlated) with GlaxoSmithKline PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GlaxoSmithKline PLC ADR has no effect on the direction of Novartis i.e., Novartis and GlaxoSmithKline PLC go up and down completely randomly.
Pair Corralation between Novartis and GlaxoSmithKline PLC
Considering the 90-day investment horizon Novartis AG ADR is expected to generate 1.26 times more return on investment than GlaxoSmithKline PLC. However, Novartis is 1.26 times more volatile than GlaxoSmithKline PLC ADR. It trades about -0.07 of its potential returns per unit of risk. GlaxoSmithKline PLC ADR is currently generating about -0.29 per unit of risk. If you would invest 9,605 in Novartis AG ADR on January 20, 2024 and sell it today you would lose (169.00) from holding Novartis AG ADR or give up 1.76% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Novartis AG ADR vs. GlaxoSmithKline PLC ADR
Performance |
Timeline |
Novartis AG ADR |
GlaxoSmithKline PLC ADR |
Novartis and GlaxoSmithKline PLC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Novartis and GlaxoSmithKline PLC
The main advantage of trading using opposite Novartis and GlaxoSmithKline PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, GlaxoSmithKline 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 GlaxoSmithKline PLC will offset losses from the drop in GlaxoSmithKline PLC's long position.Novartis vs. Alkermes Plc | Novartis vs. Ironwood Pharmaceuticals | Novartis vs. Deciphera Pharmaceuticals LLC | Novartis vs. Eagle Pharmaceuticals |
GlaxoSmithKline PLC vs. Alkermes Plc | GlaxoSmithKline PLC vs. Ironwood Pharmaceuticals | GlaxoSmithKline PLC vs. Deciphera Pharmaceuticals LLC | GlaxoSmithKline PLC vs. Eagle Pharmaceuticals |
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 CEOs Directory module to screen CEOs from public companies around the world.
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