Correlation Between Novartis and Swisscom

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

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

Diversification Opportunities for Novartis and Swisscom

0.94

Correlation Coefficient

Novartis  Swisscom

Almost no diversification

The 3 months correlation between Novartis and Swisscom is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG and Swisscom AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swisscom 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 Swisscom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swisscom AG has no effect on the direction of Novartis i.e., Novartis and Swisscom go up and down completely randomly.

Pair Corralation between Novartis and Swisscom

Assuming the 90 days trading horizon Novartis AG is expected to under-perform the Swisscom. In addition to that, Novartis is 1.16 times more volatile than Swisscom AG. It trades about -0.16 of its total potential returns per unit of risk. Swisscom AG is currently generating about -0.15 per unit of volatility. If you would invest  55,000  in Swisscom AG on September 17, 2024 and sell it today you would lose (4,450) from holding Swisscom AG or give up 8.09% of portfolio value over 90 days.

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

Novartis AG  vs.  Swisscom 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.

Swisscom AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swisscom 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.

Pair Trading with Novartis and Swisscom

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

The idea behind Novartis AG and Swisscom 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.