Correlation Between MEI Pharma and Novo Nordisk

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

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

Diversification Opportunities for MEI Pharma and Novo Nordisk

-0.58

Correlation Coefficient

MEI Pharma  Novo Nordisk

Excellent diversification

The 3 months correlation between MEI and Novo is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding MEI Pharma 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 MEI Pharma 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 MEI Pharma 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 MEI Pharma i.e., MEI Pharma and Novo Nordisk go up and down completely randomly.

Pair Corralation between MEI Pharma and Novo Nordisk

Given the investment horizon of 90 days MEI Pharma is expected to under-perform the Novo Nordisk. In addition to that, MEI Pharma is 2.4 times more volatile than Novo Nordisk AS. It trades about -0.35 of its total potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.01 per unit of volatility. If you would invest  12,755  in Novo Nordisk AS on January 29, 2024 and sell it today you would lose (70.00) from holding Novo Nordisk AS or give up 0.55% of portfolio value over 90 days.

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

MEI Pharma  vs.  Novo Nordisk AS

MEI Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MEI Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Novo Nordisk AS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novo Nordisk AS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Novo Nordisk displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MEI Pharma and Novo Nordisk

The main advantage of trading using opposite MEI Pharma and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MEI Pharma 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 MEI Pharma 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.