Correlation Between Novo Nordisk and Theravance Biopharma

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

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

Diversification Opportunities for Novo Nordisk and Theravance Biopharma

-0.46

Correlation Coefficient

Novo Nordisk  Theravance Biopharma

Very good diversification

The 3 months correlation between Novo and Theravance is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and Theravance Biopharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Theravance Biopharma and Novo Nordisk 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 Novo Nordisk AS are associated (or correlated) with Theravance Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Theravance Biopharma has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and Theravance Biopharma go up and down completely randomly.

Pair Corralation between Novo Nordisk and Theravance Biopharma

Considering the 90-day investment horizon Novo Nordisk AS is expected to generate 0.85 times more return on investment than Theravance Biopharma. However, Novo Nordisk AS is 1.18 times less risky than Theravance Biopharma. It trades about 0.1 of its potential returns per unit of risk. Theravance Biopharma is currently generating about 0.01 per unit of risk. If you would invest  5,277  in Novo Nordisk AS on January 30, 2024 and sell it today you would earn a total of  7,489  from holding Novo Nordisk AS or generate 141.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Novo Nordisk AS  vs.  Theravance Biopharma

Novo Nordisk AS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novo Nordisk AS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Novo Nordisk displayed solid returns over the last few months and may actually be approaching a breakup point.

Theravance Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Theravance Biopharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Theravance Biopharma is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Novo Nordisk and Theravance Biopharma

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

The idea behind Novo Nordisk AS and Theravance Biopharma 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.