Correlation Between Charles Schwab and Novo Nordisk

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

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

Diversification Opportunities for Charles Schwab and Novo Nordisk

0.57

Correlation Coefficient

Charles Schwab  Novo Nordisk

Very weak diversification

The 3 months correlation between Charles and Novo is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Charles Schwab Corp 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 Charles Schwab 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 Charles Schwab Corp 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 Charles Schwab i.e., Charles Schwab and Novo Nordisk go up and down completely randomly.

Pair Corralation between Charles Schwab and Novo Nordisk

Given the investment horizon of 90 days Charles Schwab Corp is expected to generate 0.82 times more return on investment than Novo Nordisk. However, Charles Schwab Corp is 1.22 times less risky than Novo Nordisk. It trades about 0.19 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.06 per unit of risk. If you would invest  7,133  in Charles Schwab Corp on January 24, 2024 and sell it today you would earn a total of  293.00  from holding Charles Schwab Corp or generate 4.11% return on investment over 90 days.

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

Charles Schwab Corp  vs.  Novo Nordisk AS

Charles Schwab Corp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Charles Schwab Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, Charles Schwab showed solid returns over the last few months and may actually be approaching a breakup point.

Novo Nordisk AS

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novo Nordisk AS are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Novo Nordisk reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charles Schwab and Novo Nordisk

The main advantage of trading using opposite Charles Schwab and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charles Schwab 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 Charles Schwab Corp 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.