Correlation Between Enanta Pharmaceuticals and Novartis

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

By analyzing existing cross correlation between Enanta Pharmaceuticals and Novartis AG ADR, you can compare the effects of market volatilities on Enanta Pharmaceuticals and Novartis 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 Enanta Pharmaceuticals with a short position of Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enanta Pharmaceuticals and Novartis.

Diversification Opportunities for Enanta Pharmaceuticals and Novartis

0.79

Correlation Coefficient

Enanta Pharmaceuticals  Novartis

Poor diversification

The 3 months correlation between Enanta and Novartis is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Enanta Pharmaceuticals and Novartis AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG ADR and Enanta Pharmaceuticals 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 Enanta Pharmaceuticals are associated (or correlated) with Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG ADR has no effect on the direction of Enanta Pharmaceuticals i.e., Enanta Pharmaceuticals and Novartis go up and down completely randomly.

Pair Corralation between Enanta Pharmaceuticals and Novartis

Given the investment horizon of 90 days Enanta Pharmaceuticals is expected to under-perform the Novartis. In addition to that, Enanta Pharmaceuticals is 3.96 times more volatile than Novartis AG ADR. It trades about -0.2 of its total potential returns per unit of risk. Novartis AG ADR is currently generating about -0.24 per unit of volatility. If you would invest  11,572  in Novartis AG ADR on September 12, 2024 and sell it today you would lose (1,642) from holding Novartis AG ADR or give up 14.19% of portfolio value over 90 days.

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

Enanta Pharmaceuticals  vs.  Novartis AG ADR

Enanta Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enanta Pharmaceuticals 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.

Novartis AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Enanta Pharmaceuticals and Novartis

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

The idea behind Enanta Pharmaceuticals and Novartis AG ADR 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.