Correlation Between OBI Pharma and Klingon Aerospace

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

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

Diversification Opportunities for OBI Pharma and Klingon Aerospace

0.66

Correlation Coefficient

OBI Pharma  Klingon Aerospace

Poor diversification

The 3 months correlation between OBI and Klingon is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding OBI Pharma and Klingon Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Klingon Aerospace and OBI Pharma 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 OBI Pharma are associated (or correlated) with Klingon Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Klingon Aerospace has no effect on the direction of OBI Pharma i.e., OBI Pharma and Klingon Aerospace go up and down completely randomly.

Pair Corralation between OBI Pharma and Klingon Aerospace

Assuming the 90 days trading horizon OBI Pharma is expected to under-perform the Klingon Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, OBI Pharma is 1.56 times less risky than Klingon Aerospace. The stock trades about -0.04 of its potential returns per unit of risk. The Klingon Aerospace is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,180  in Klingon Aerospace on December 4, 2024 and sell it today you would earn a total of  295.00  from holding Klingon Aerospace or generate 13.53% return on investment over 90 days.

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

OBI Pharma  vs.  Klingon Aerospace

OBI Pharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days OBI Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Klingon Aerospace

Risk-Adjusted Performance

Very Weak

Over the last 90 days Klingon Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Klingon Aerospace is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with OBI Pharma and Klingon Aerospace

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

The idea behind OBI Pharma and Klingon Aerospace 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.