Correlation Between Amexdrug and Better Plant

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

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

Diversification Opportunities for Amexdrug and Better Plant

1.0

Correlation Coefficient

Amexdrug  Better Plant

No risk reduction

The 3 months correlation between Amexdrug and Better is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Amexdrug and Better Plant Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better Plant Sciences and Amexdrug 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 Amexdrug are associated (or correlated) with Better Plant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better Plant Sciences has no effect on the direction of Amexdrug i.e., Amexdrug and Better Plant go up and down completely randomly.

Pair Corralation between Amexdrug and Better Plant

Given the investment horizon of 90 days Amexdrug is expected to generate 4.62 times less return on investment than Better Plant. But when comparing it to its historical volatility, Amexdrug is 1.44 times less risky than Better Plant. It trades about 0.04 of its potential returns per unit of risk. Better Plant Sciences is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Better Plant Sciences on October 24, 2024 and sell it today you would lose (14.00) from holding Better Plant Sciences or give up 93.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	91.15%
Values	Daily Returns

Amexdrug  vs.  Better Plant Sciences

Amexdrug

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amexdrug has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Amexdrug is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Better Plant Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Better Plant Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Better Plant is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Amexdrug and Better Plant

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

The idea behind Amexdrug and Better Plant Sciences 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 Global Correlations module to find global opportunities by holding instruments from different markets.