Correlation Between Defence Therapeutics and Novo Nordisk

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

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

Diversification Opportunities for Defence Therapeutics and Novo Nordisk

0.35

Correlation Coefficient

Defence Therapeutics  Novo Nordisk

Weak diversification

The 3 months correlation between Defence and Novo is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Defence Therapeutics 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 Defence Therapeutics 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 Defence Therapeutics 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 Defence Therapeutics i.e., Defence Therapeutics and Novo Nordisk go up and down completely randomly.

Pair Corralation between Defence Therapeutics and Novo Nordisk

Assuming the 90 days horizon Defence Therapeutics is expected to generate 1.05 times more return on investment than Novo Nordisk. However, Defence Therapeutics is 1.05 times more volatile than Novo Nordisk AS. It trades about 0.03 of its potential returns per unit of risk. Novo Nordisk AS is currently generating about -0.14 per unit of risk. If you would invest  40.00  in Defence Therapeutics on September 15, 2024 and sell it today you would earn a total of  1.00  from holding Defence Therapeutics or generate 2.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Defence Therapeutics  vs.  Novo Nordisk AS

Defence Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Defence Therapeutics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Defence Therapeutics and Novo Nordisk

The main advantage of trading using opposite Defence Therapeutics and Novo Nordisk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Defence Therapeutics 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 Defence Therapeutics 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.