Correlation Between Teva Pharmaceutical and Nova

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

By analyzing existing cross correlation between Teva Pharmaceutical Industries and Nova, you can compare the effects of market volatilities on Teva Pharmaceutical and Nova 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 Teva Pharmaceutical with a short position of Nova. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharmaceutical and Nova.

Diversification Opportunities for Teva Pharmaceutical and Nova

0.92

Correlation Coefficient

Teva Pharmaceutical  Nova

Almost no diversification

The 3 months correlation between Teva and Nova is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharmaceutical Industries and Nova in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova and Teva Pharmaceutical 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 Teva Pharmaceutical Industries are associated (or correlated) with Nova. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova has no effect on the direction of Teva Pharmaceutical i.e., Teva Pharmaceutical and Nova go up and down completely randomly.

Pair Corralation between Teva Pharmaceutical and Nova

Assuming the 90 days trading horizon Teva Pharmaceutical Industries is expected to generate 1.89 times more return on investment than Nova. However, Teva Pharmaceutical is 1.89 times more volatile than Nova. It trades about 0.05 of its potential returns per unit of risk. Nova is currently generating about -0.09 per unit of risk. If you would invest  510,600  in Teva Pharmaceutical Industries on February 2, 2024 and sell it today you would earn a total of  6,800  from holding Teva Pharmaceutical Industries or generate 1.33% return on investment over 90 days.

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

Teva Pharmaceutical Industries  vs.  Nova

Teva Pharmaceutical

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Teva Pharmaceutical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Teva Pharmaceutical sustained solid returns over the last few months and may actually be approaching a breakup point.

Nova

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Nova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Nova sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharmaceutical and Nova

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

The idea behind Teva Pharmaceutical Industries and Nova 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.