Correlation Between Novartis and Geberit AG

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

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

Diversification Opportunities for Novartis and Geberit AG

0.35

Correlation Coefficient

Novartis  Geberit AG

Weak diversification

The 3 months correlation between Novartis and Geberit is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Geberit AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geberit AG and Novartis 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 Novartis AG are associated (or correlated) with Geberit AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geberit AG has no effect on the direction of Novartis i.e., Novartis and Geberit AG go up and down completely randomly.

Pair Corralation between Novartis and Geberit AG

Assuming the 90 days trading horizon Novartis AG is expected to under-perform the Geberit AG. But the stock apears to be less risky and, when comparing its historical volatility, Novartis AG is 1.2 times less risky than Geberit AG. The stock trades about -0.14 of its potential returns per unit of risk. The Geberit AG is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  54,360  in Geberit AG on September 2, 2024 and sell it today you would lose (1,320) from holding Geberit AG or give up 2.43% of portfolio value over 90 days.

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

Novartis AG  vs.  Geberit AG

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. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Geberit AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Geberit AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Geberit AG is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Novartis and Geberit AG

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

The idea behind Novartis AG and Geberit 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..