Correlation Between Novo Nordisk and WuXi Biologics

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

Diversification Opportunities for Novo Nordisk and WuXi Biologics

-0.71

Correlation Coefficient

Novo Nordisk  WuXi Biologics

Pay attention - limited upside

The 3 months correlation between Novo and WuXi is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Novo Nordisk AS and WuXi Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Biologics 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 WuXi Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi Biologics has no effect on the direction of Novo Nordisk i.e., Novo Nordisk and WuXi Biologics go up and down completely randomly.

Pair Corralation between Novo Nordisk and WuXi Biologics

Considering the 90-day investment horizon Novo Nordisk AS is expected to generate 0.48 times more return on investment than WuXi Biologics. However, Novo Nordisk AS is 2.1 times less risky than WuXi Biologics. It trades about -0.01 of its potential returns per unit of risk. WuXi Biologics is currently generating about -0.09 per unit of risk. If you would invest  12,755  in Novo Nordisk AS on January 29, 2024 and sell it today you would lose (70.00) from holding Novo Nordisk AS or give up 0.55% of portfolio value over 90 days.

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

Novo Nordisk AS  vs.  WuXi Biologics

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 weak basic indicators, Novo Nordisk displayed solid returns over the last few months and may actually be approaching a breakup point.

WuXi Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WuXi Biologics 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 fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Novo Nordisk and WuXi Biologics

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

The idea behind Novo Nordisk AS and WuXi Biologics 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.