Correlation Between PharmaEngine and TaiMed Biologics

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

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

Diversification Opportunities for PharmaEngine and TaiMed Biologics

0.73

Correlation Coefficient

PharmaEngine  TaiMed Biologics

Poor diversification

The 3 months correlation between PharmaEngine and TaiMed is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding PharmaEngine and TaiMed Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TaiMed Biologics and PharmaEngine 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 PharmaEngine are associated (or correlated) with TaiMed Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TaiMed Biologics has no effect on the direction of PharmaEngine i.e., PharmaEngine and TaiMed Biologics go up and down completely randomly.

Pair Corralation between PharmaEngine and TaiMed Biologics

Assuming the 90 days trading horizon PharmaEngine is expected to generate 1.19 times more return on investment than TaiMed Biologics. However, PharmaEngine is 1.19 times more volatile than TaiMed Biologics. It trades about 0.1 of its potential returns per unit of risk. TaiMed Biologics is currently generating about 0.1 per unit of risk. If you would invest  9,440  in PharmaEngine on December 2, 2024 and sell it today you would earn a total of  1,460  from holding PharmaEngine or generate 15.47% return on investment over 90 days.

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

PharmaEngine  vs.  TaiMed Biologics

PharmaEngine

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PharmaEngine are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, PharmaEngine showed solid returns over the last few months and may actually be approaching a breakup point.

TaiMed Biologics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TaiMed Biologics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, TaiMed Biologics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PharmaEngine and TaiMed Biologics

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

The idea behind PharmaEngine and TaiMed Biologics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.