Correlation Between Apple and Teva Pharmaceutical

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

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

Diversification Opportunities for Apple and Teva Pharmaceutical

0.36

Correlation Coefficient

Apple  Teva Pharmaceutical

Weak diversification

The 3 months correlation between Apple and Teva is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Teva Pharmaceutical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teva Pharmaceutical and Apple 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 Apple Inc are associated (or correlated) with Teva Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teva Pharmaceutical has no effect on the direction of Apple i.e., Apple and Teva Pharmaceutical go up and down completely randomly.

Pair Corralation between Apple and Teva Pharmaceutical

Assuming the 90 days trading horizon Apple Inc is expected to generate 0.68 times more return on investment than Teva Pharmaceutical. However, Apple Inc is 1.48 times less risky than Teva Pharmaceutical. It trades about -0.17 of its potential returns per unit of risk. Teva Pharmaceutical Industries is currently generating about -0.18 per unit of risk. If you would invest  24,484  in Apple Inc on December 21, 2024 and sell it today you would lose (4,644) from holding Apple Inc or give up 18.97% of portfolio value over 90 days.

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

Apple Inc  vs.  Teva Pharmaceutical Industries

Apple Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Teva Pharmaceutical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teva Pharmaceutical Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Apple and Teva Pharmaceutical

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

The idea behind Apple Inc and Teva Pharmaceutical Industries 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.