Correlation Between AmerisourceBergen and Shanghai Pharmaceuticals

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

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

Diversification Opportunities for AmerisourceBergen and Shanghai Pharmaceuticals

0.57

Correlation Coefficient

AmerisourceBergen  Shanghai Pharmaceuticals

Very weak diversification

The 3 months correlation between AmerisourceBergen and Shanghai is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding AmerisourceBergen and Shanghai Pharmaceuticals Holdi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Pharmaceuticals and AmerisourceBergen 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 AmerisourceBergen are associated (or correlated) with Shanghai Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Pharmaceuticals has no effect on the direction of AmerisourceBergen i.e., AmerisourceBergen and Shanghai Pharmaceuticals go up and down completely randomly.

Pair Corralation between AmerisourceBergen and Shanghai Pharmaceuticals

Assuming the 90 days horizon AmerisourceBergen is expected to under-perform the Shanghai Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, AmerisourceBergen is 1.62 times less risky than Shanghai Pharmaceuticals. The stock trades about -0.32 of its potential returns per unit of risk. The Shanghai Pharmaceuticals Holding is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  147.00  in Shanghai Pharmaceuticals Holding on September 23, 2024 and sell it today you would earn a total of  11.00  from holding Shanghai Pharmaceuticals Holding or generate 7.48% return on investment over 90 days.

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

AmerisourceBergen  vs.  Shanghai Pharmaceuticals Holdi

AmerisourceBergen

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AmerisourceBergen are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AmerisourceBergen may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shanghai Pharmaceuticals

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Pharmaceuticals Holding are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shanghai Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AmerisourceBergen and Shanghai Pharmaceuticals

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

The idea behind AmerisourceBergen and Shanghai Pharmaceuticals Holding 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..