Correlation Between GSK Plc and Novartis

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

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

Diversification Opportunities for GSK Plc and Novartis

0.76

Correlation Coefficient

GSK Plc  Novartis

Poor diversification

The 3 months correlation between GSK and Novartis is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding GSK plc and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG and GSK Plc 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 GSK plc 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 has no effect on the direction of GSK Plc i.e., GSK Plc and Novartis go up and down completely randomly.

Pair Corralation between GSK Plc and Novartis

Assuming the 90 days horizon GSK plc is expected to under-perform the Novartis. In addition to that, GSK Plc is 1.18 times more volatile than Novartis AG. It trades about -0.12 of its total potential returns per unit of risk. Novartis AG is currently generating about -0.06 per unit of volatility. If you would invest  11,018  in Novartis AG on September 16, 2024 and sell it today you would lose (1,141) from holding Novartis AG or give up 10.36% of portfolio value over 90 days.

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

GSK plc  vs.  Novartis AG

GSK plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GSK plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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.

Novartis AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novartis AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with GSK Plc and Novartis

The main advantage of trading using opposite GSK Plc and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GSK Plc 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 GSK plc and Novartis AG 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.