Correlation Between Novartis and Chevron Corp

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

By analyzing existing cross correlation between Novartis AG and Chevron Corp, you can compare the effects of market volatilities on Novartis and Chevron Corp 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 Chevron Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Chevron Corp.

Diversification Opportunities for Novartis and Chevron Corp

-0.84

Correlation Coefficient

Novartis  Chevron Corp

Pay attention - limited upside

The 3 months correlation between Novartis and Chevron is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 are associated (or correlated) with Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of Novartis i.e., Novartis and Chevron Corp go up and down completely randomly.

Pair Corralation between Novartis and Chevron Corp

Assuming the 90 days horizon Novartis AG is expected to under-perform the Chevron Corp. In addition to that, Novartis is 1.79 times more volatile than Chevron Corp. It trades about -0.11 of its total potential returns per unit of risk. Chevron Corp is currently generating about 0.0 per unit of volatility. If you would invest  15,662  in Chevron Corp on January 19, 2024 and sell it today you would lose (22.00) from holding Chevron Corp or give up 0.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Novartis AG  vs.  Chevron Corp

Novartis AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Chevron Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Chevron Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Novartis and Chevron Corp

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

The idea behind Novartis AG and Chevron Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.