Correlation Between Sika AG and Novozymes

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

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

Diversification Opportunities for Sika AG and Novozymes

0.94

Correlation Coefficient

Sika AG  Novozymes

Almost no diversification

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

Pair Corralation between Sika AG and Novozymes

Assuming the 90 days horizon Sika AG is expected to under-perform the Novozymes. In addition to that, Sika AG is 2.05 times more volatile than Novozymes AS. It trades about -0.03 of its total potential returns per unit of risk. Novozymes AS is currently generating about 0.05 per unit of volatility. If you would invest  5,865  in Novozymes AS on September 13, 2024 and sell it today you would earn a total of  69.00  from holding Novozymes AS or generate 1.18% return on investment over 90 days.

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

Sika AG  vs.  Novozymes AS

Sika AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sika AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady 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.

Novozymes AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novozymes AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sika AG and Novozymes

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

The idea behind Sika AG and Novozymes AS 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.