Correlation Between Nuvalent and NOVARTIS

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

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

Diversification Opportunities for Nuvalent and NOVARTIS

0.65

Correlation Coefficient

Nuvalent  NOVARTIS

Poor diversification

The 3 months correlation between Nuvalent and NOVARTIS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and NOVARTIS CAP P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVARTIS CAP P and Nuvalent 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 Nuvalent 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 CAP P has no effect on the direction of Nuvalent i.e., Nuvalent and NOVARTIS go up and down completely randomly.

Pair Corralation between Nuvalent and NOVARTIS

Given the investment horizon of 90 days Nuvalent is expected to under-perform the NOVARTIS. In addition to that, Nuvalent is 2.52 times more volatile than NOVARTIS CAP P. It trades about -0.15 of its total potential returns per unit of risk. NOVARTIS CAP P is currently generating about -0.08 per unit of volatility. If you would invest  9,760  in NOVARTIS CAP P on September 14, 2024 and sell it today you would lose (473.00) from holding NOVARTIS CAP P or give up 4.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.65%
Values	Daily Returns

Nuvalent  vs.  NOVARTIS CAP P

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent 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 quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

NOVARTIS CAP P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NOVARTIS CAP P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NOVARTIS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nuvalent and NOVARTIS

The main advantage of trading using opposite Nuvalent and NOVARTIS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuvalent 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's long position.

The idea behind Nuvalent and NOVARTIS CAP P 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 Stocks Directory module to find actively traded stocks across global markets.