Correlation Between Capital One and Novo Nordisk

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

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

Diversification Opportunities for Capital One and Novo Nordisk

-0.42

Correlation Coefficient

Capital One  Novo Nordisk

Very good diversification

The 3 months correlation between Capital and Novo is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial 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 Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Novo Nordisk go up and down completely randomly.

Pair Corralation between Capital One and Novo Nordisk

Assuming the 90 days trading horizon Capital One is expected to generate 1.77 times less return on investment than Novo Nordisk. But when comparing it to its historical volatility, Capital One Financial is 3.88 times less risky than Novo Nordisk. It trades about 0.1 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,484  in Novo Nordisk AS on September 26, 2024 and sell it today you would earn a total of  2,413  from holding Novo Nordisk AS or generate 53.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.8%
Values	Daily Returns

Capital One Financial  vs.  Novo Nordisk AS

Capital One Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Novo Nordisk AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novo Nordisk AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Capital One and Novo Nordisk

The main advantage of trading using opposite Capital One and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.