Correlation Between Catalent and China Medical

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

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

Diversification Opportunities for Catalent and China Medical

-0.44

Correlation Coefficient

Catalent  China Medical

Very good diversification

The 3 months correlation between Catalent and China is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Catalent and China Medical System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medical System and Catalent 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 Catalent are associated (or correlated) with China Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medical System has no effect on the direction of Catalent i.e., Catalent and China Medical go up and down completely randomly.

Pair Corralation between Catalent and China Medical

Assuming the 90 days horizon Catalent is expected to generate 0.61 times more return on investment than China Medical. However, Catalent is 1.63 times less risky than China Medical. It trades about 0.34 of its potential returns per unit of risk. China Medical System is currently generating about -0.04 per unit of risk. If you would invest  5,343  in Catalent on October 6, 2024 and sell it today you would earn a total of  650.00  from holding Catalent or generate 12.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	84.62%
Values	Daily Returns

Catalent  vs.  China Medical System

Catalent

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Catalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Catalent may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Medical System

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Medical System has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Catalent and China Medical

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

The idea behind Catalent and China Medical System 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.