Correlation Between China Medical and Takeda Pharmaceutical

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

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

Diversification Opportunities for China Medical and Takeda Pharmaceutical

0.75

Correlation Coefficient

China Medical  Takeda Pharmaceutical

Poor diversification

The 3 months correlation between China and Takeda is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding China Medical System and Takeda Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Takeda Pharmaceutical and China Medical 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 China Medical System are associated (or correlated) with Takeda Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Takeda Pharmaceutical has no effect on the direction of China Medical i.e., China Medical and Takeda Pharmaceutical go up and down completely randomly.

Pair Corralation between China Medical and Takeda Pharmaceutical

Assuming the 90 days trading horizon China Medical is expected to generate 1.65 times less return on investment than Takeda Pharmaceutical. In addition to that, China Medical is 1.65 times more volatile than Takeda Pharmaceutical. It trades about 0.04 of its total potential returns per unit of risk. Takeda Pharmaceutical is currently generating about 0.12 per unit of volatility. If you would invest  2,500  in Takeda Pharmaceutical on December 21, 2024 and sell it today you would earn a total of  233.00  from holding Takeda Pharmaceutical or generate 9.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

China Medical System  vs.  Takeda Pharmaceutical

China Medical System

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Medical System are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, China Medical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Takeda Pharmaceutical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Takeda Pharmaceutical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Takeda Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China Medical and Takeda Pharmaceutical

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

The idea behind China Medical System and Takeda Pharmaceutical 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..