Correlation Between UCB SA and Novo Nordisk

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

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

Diversification Opportunities for UCB SA and Novo Nordisk

0.81

Correlation Coefficient

UCB SA  Novo Nordisk

Very poor diversification

The 3 months correlation between UCB and Novo is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding UCB SA ADR 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 UCB SA 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 UCB SA ADR 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 UCB SA i.e., UCB SA and Novo Nordisk go up and down completely randomly.

Pair Corralation between UCB SA and Novo Nordisk

Assuming the 90 days horizon UCB SA ADR is expected to generate 1.08 times more return on investment than Novo Nordisk. However, UCB SA is 1.08 times more volatile than Novo Nordisk AS. It trades about 0.35 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.28 per unit of risk. If you would invest  5,882  in UCB SA ADR on January 20, 2024 and sell it today you would earn a total of  486.00  from holding UCB SA ADR or generate 8.26% return on investment over 90 days.

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

UCB SA ADR  vs.  Novo Nordisk AS

UCB SA ADR

Risk-Adjusted Performance

25 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in UCB SA ADR are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking indicators, UCB SA showed solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, Novo Nordisk displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UCB SA and Novo Nordisk

The main advantage of trading using opposite UCB SA and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UCB SA 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 UCB SA ADR 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 CEOs Directory module to screen CEOs from public companies around the world.