Correlation Between Novo Nordisk and UCB SA

Can any of the company-specific risk be diversified away by investing in both Novo Nordisk and UCB SA 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 UCB SA 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 UCB SA ADR, you can compare the effects of market volatilities on Novo Nordisk and UCB SA 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 UCB SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novo Nordisk and UCB SA.

Diversification Opportunities for Novo Nordisk and UCB SA

0.65

Correlation Coefficient

Novo Nordisk  UCB SA

Poor diversification

The 3 months correlation between Novo and UCB is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and UCB SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UCB SA ADR 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 UCB SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UCB SA ADR has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and UCB SA go up and down completely randomly.

Pair Corralation between Novo Nordisk and UCB SA

Considering the 90-day investment horizon Novo Nordisk AS is expected to generate 1.14 times more return on investment than UCB SA. However, Novo Nordisk is 1.14 times more volatile than UCB SA ADR. It trades about 0.13 of its potential returns per unit of risk. UCB SA ADR is currently generating about 0.11 per unit of risk. If you would invest  5,146  in Novo Nordisk AS on February 3, 2024 and sell it today you would earn a total of  7,256  from holding Novo Nordisk AS or generate 141.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.75%
Values	Daily Returns

Novo Nordisk AS  vs.  UCB SA ADR

Novo Nordisk AS

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Novo Nordisk AS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Novo Nordisk may actually be approaching a critical reversion point that can send shares even higher in June 2024.

UCB SA ADR

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in UCB SA ADR are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward-looking indicators, UCB SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Novo Nordisk and UCB SA

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

The idea behind Novo Nordisk AS and UCB SA ADR 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.