Correlation Between Public Service and Faron Pharmaceuticals

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

By analyzing existing cross correlation between Public Service Enterprise and Faron Pharmaceuticals Oy, you can compare the effects of market volatilities on Public Service and Faron Pharmaceuticals 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 Public Service with a short position of Faron Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Service and Faron Pharmaceuticals.

Diversification Opportunities for Public Service and Faron Pharmaceuticals

0.35

Correlation Coefficient

Public Service  Faron Pharmaceuticals

Weak diversification

The 3 months correlation between Public and Faron is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and Faron Pharmaceuticals Oy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faron Pharmaceuticals and Public Service 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 Public Service Enterprise are associated (or correlated) with Faron Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faron Pharmaceuticals has no effect on the direction of Public Service i.e., Public Service and Faron Pharmaceuticals go up and down completely randomly.

Pair Corralation between Public Service and Faron Pharmaceuticals

Assuming the 90 days trading horizon Public Service Enterprise is expected to under-perform the Faron Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Public Service Enterprise is 1.72 times less risky than Faron Pharmaceuticals. The stock trades about -0.02 of its potential returns per unit of risk. The Faron Pharmaceuticals Oy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  20,500  in Faron Pharmaceuticals Oy on December 28, 2024 and sell it today you would earn a total of  500.00  from holding Faron Pharmaceuticals Oy or generate 2.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.19%
Values	Daily Returns

Public Service Enterprise  vs.  Faron Pharmaceuticals Oy

Public Service Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Public Service Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Public Service is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Faron Pharmaceuticals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Faron Pharmaceuticals Oy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Faron Pharmaceuticals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Public Service and Faron Pharmaceuticals

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

The idea behind Public Service Enterprise and Faron Pharmaceuticals Oy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.