Correlation Between Biofrontera and China Pharma

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

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

Diversification Opportunities for Biofrontera and China Pharma

-0.32

Correlation Coefficient

Biofrontera  China Pharma

Very good diversification

The 3 months correlation between Biofrontera and China is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Biofrontera and China Pharma Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pharma Holdings and Biofrontera 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 Biofrontera are associated (or correlated) with China Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pharma Holdings has no effect on the direction of Biofrontera i.e., Biofrontera and China Pharma go up and down completely randomly.

Pair Corralation between Biofrontera and China Pharma

Given the investment horizon of 90 days Biofrontera is expected to under-perform the China Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Biofrontera is 2.17 times less risky than China Pharma. The stock trades about -0.09 of its potential returns per unit of risk. The China Pharma Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  20.00  in China Pharma Holdings on December 30, 2024 and sell it today you would earn a total of  7.00  from holding China Pharma Holdings or generate 35.0% return on investment over 90 days.

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

Biofrontera  vs.  China Pharma Holdings

Biofrontera

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biofrontera has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

China Pharma Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Pharma Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, China Pharma demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biofrontera and China Pharma

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

The idea behind Biofrontera and China Pharma Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..