Correlation Between Novartis and Pfizer
Can any of the company-specific risk be diversified away by investing in both Novartis and Pfizer 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 Pfizer 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 Pfizer Inc, you can compare the effects of market volatilities on Novartis and Pfizer 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 Pfizer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Pfizer.
Diversification Opportunities for Novartis and Pfizer
Very weak diversification
The 3 months correlation between Novartis and Pfizer is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc 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 Pfizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfizer Inc has no effect on the direction of Novartis i.e., Novartis and Pfizer go up and down completely randomly.
Pair Corralation between Novartis and Pfizer
Considering the 90-day investment horizon Novartis AG ADR is expected to generate 0.79 times more return on investment than Pfizer. However, Novartis AG ADR is 1.27 times less risky than Pfizer. It trades about 0.04 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.07 per unit of risk. If you would invest 7,637 in Novartis AG ADR on January 21, 2024 and sell it today you would earn a total of 1,799 from holding Novartis AG ADR or generate 23.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Novartis AG ADR vs. Pfizer Inc
Performance |
| Timeline |
| Novartis AG ADR |
| Pfizer Inc |
Novartis and Pfizer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Pfizer
The main advantage of trading using opposite Novartis and Pfizer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Pfizer 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 Pfizer will offset losses from the drop in Pfizer's long position.| Novartis vs. Alkermes Plc | Novartis vs. Ironwood Pharmaceuticals | Novartis vs. Deciphera Pharmaceuticals LLC | Novartis vs. Eagle Pharmaceuticals |
| Pfizer vs. Alkermes Plc | Pfizer vs. Ironwood Pharmaceuticals | Pfizer vs. Deciphera Pharmaceuticals LLC | Pfizer vs. Eagle Pharmaceuticals |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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