Correlation Between Catalent and Teva Pharmaceutical

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

By analyzing existing cross correlation between Catalent and Teva Pharmaceutical Industries, you can compare the effects of market volatilities on Catalent and Teva Pharmaceutical 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 Teva Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Catalent and Teva Pharmaceutical.

Diversification Opportunities for Catalent and Teva Pharmaceutical

0.51

Correlation Coefficient

Catalent  Teva Pharmaceutical

Very weak diversification

The 3 months correlation between Catalent and Teva is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Catalent and Teva Pharmaceutical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teva Pharmaceutical 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 Teva Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teva Pharmaceutical has no effect on the direction of Catalent i.e., Catalent and Teva Pharmaceutical go up and down completely randomly.

Pair Corralation between Catalent and Teva Pharmaceutical

Assuming the 90 days horizon Catalent is expected to generate 3.51 times less return on investment than Teva Pharmaceutical. But when comparing it to its historical volatility, Catalent is 6.06 times less risky than Teva Pharmaceutical. It trades about 0.41 of its potential returns per unit of risk. Teva Pharmaceutical Industries is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,620  in Teva Pharmaceutical Industries on September 22, 2024 and sell it today you would earn a total of  500.00  from holding Teva Pharmaceutical Industries or generate 30.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.3%
Values	Daily Returns

Catalent  vs.  Teva Pharmaceutical Industries

Catalent

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Catalent may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Teva Pharmaceutical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharmaceutical Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Teva Pharmaceutical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Catalent and Teva Pharmaceutical

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

The idea behind Catalent and Teva Pharmaceutical Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.