Correlation Between Biofrontera and Sonoma Pharmaceuticals

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

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

Diversification Opportunities for Biofrontera and Sonoma Pharmaceuticals

-0.23

Correlation Coefficient

Biofrontera  Sonoma Pharmaceuticals

Very good diversification

The 3 months correlation between Biofrontera and Sonoma is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Biofrontera and Sonoma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoma Pharmaceuticals 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 Sonoma Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonoma Pharmaceuticals has no effect on the direction of Biofrontera i.e., Biofrontera and Sonoma Pharmaceuticals go up and down completely randomly.

Pair Corralation between Biofrontera and Sonoma Pharmaceuticals

Given the investment horizon of 90 days Biofrontera is expected to generate 2.24 times more return on investment than Sonoma Pharmaceuticals. However, Biofrontera is 2.24 times more volatile than Sonoma Pharmaceuticals. It trades about -0.02 of its potential returns per unit of risk. Sonoma Pharmaceuticals is currently generating about -0.31 per unit of risk. If you would invest  115.00  in Biofrontera on October 8, 2024 and sell it today you would lose (3.00) from holding Biofrontera or give up 2.61% of portfolio value over 90 days.

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

Biofrontera  vs.  Sonoma Pharmaceuticals

Biofrontera

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Biofrontera are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Biofrontera demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Sonoma Pharmaceuticals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonoma Pharmaceuticals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sonoma Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Biofrontera and Sonoma Pharmaceuticals

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

The idea behind Biofrontera and Sonoma Pharmaceuticals 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.