Correlation Between OBI Pharma and PharmaEngine

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

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

Diversification Opportunities for OBI Pharma and PharmaEngine

0.3

Correlation Coefficient

OBI Pharma  PharmaEngine

Weak diversification

The 3 months correlation between OBI and PharmaEngine is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding OBI Pharma and PharmaEngine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PharmaEngine 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 PharmaEngine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PharmaEngine has no effect on the direction of OBI Pharma i.e., OBI Pharma and PharmaEngine go up and down completely randomly.

Pair Corralation between OBI Pharma and PharmaEngine

Assuming the 90 days trading horizon OBI Pharma is expected to under-perform the PharmaEngine. But the stock apears to be less risky and, when comparing its historical volatility, OBI Pharma is 1.71 times less risky than PharmaEngine. The stock trades about -0.06 of its potential returns per unit of risk. The PharmaEngine is currently generating about 0.1 of returns per unit of risk over similar time horizon. 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

OBI Pharma  vs.  PharmaEngine

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 fairly stable basic indicators, OBI Pharma is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with OBI Pharma and PharmaEngine

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

The idea behind OBI Pharma and PharmaEngine 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.