Correlation Between Solution Advanced and NeoPharm

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

By analyzing existing cross correlation between Solution Advanced Technology and NeoPharm LTD, you can compare the effects of market volatilities on Solution Advanced and NeoPharm 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 Solution Advanced with a short position of NeoPharm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solution Advanced and NeoPharm.

Diversification Opportunities for Solution Advanced and NeoPharm

-0.22

Correlation Coefficient

Solution Advanced  NeoPharm

Very good diversification

The 3 months correlation between Solution and NeoPharm is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Solution Advanced Technology and NeoPharm LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NeoPharm LTD and Solution Advanced 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 Solution Advanced Technology are associated (or correlated) with NeoPharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NeoPharm LTD has no effect on the direction of Solution Advanced i.e., Solution Advanced and NeoPharm go up and down completely randomly.

Pair Corralation between Solution Advanced and NeoPharm

Assuming the 90 days trading horizon Solution Advanced Technology is expected to under-perform the NeoPharm. In addition to that, Solution Advanced is 1.0 times more volatile than NeoPharm LTD. It trades about -0.08 of its total potential returns per unit of risk. NeoPharm LTD is currently generating about 0.05 per unit of volatility. If you would invest  1,120,000  in NeoPharm LTD on September 15, 2024 and sell it today you would earn a total of  75,000  from holding NeoPharm LTD or generate 6.7% return on investment over 90 days.

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

Solution Advanced Technology  vs.  NeoPharm LTD

Solution Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solution Advanced Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

NeoPharm LTD

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NeoPharm LTD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NeoPharm may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Solution Advanced and NeoPharm

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

The idea behind Solution Advanced Technology and NeoPharm LTD 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.