Correlation Between Novartis and Gilead Sciences

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

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

Diversification Opportunities for Novartis and Gilead Sciences

-0.81

Correlation Coefficient

Novartis  Gilead Sciences

Pay attention - limited upside

The 3 months correlation between Novartis and Gilead is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 ADR are associated (or correlated) with Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Novartis i.e., Novartis and Gilead Sciences go up and down completely randomly.

Pair Corralation between Novartis and Gilead Sciences

Considering the 90-day investment horizon Novartis AG ADR is expected to under-perform the Gilead Sciences. But the stock apears to be less risky and, when comparing its historical volatility, Novartis AG ADR is 1.43 times less risky than Gilead Sciences. The stock trades about -0.22 of its potential returns per unit of risk. The Gilead Sciences is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,827  in Gilead Sciences on August 30, 2024 and sell it today you would earn a total of  1,414  from holding Gilead Sciences or generate 18.07% return on investment over 90 days.

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

Novartis AG ADR  vs.  Gilead Sciences

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 December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Gilead Sciences

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Gilead Sciences exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novartis and Gilead Sciences

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

The idea behind Novartis AG ADR and Gilead Sciences 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.