Correlation Between Connect Biopharma and Sonoma Pharmaceuticals

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

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

Diversification Opportunities for Connect Biopharma and Sonoma Pharmaceuticals

-0.21

Correlation Coefficient

Connect Biopharma  Sonoma Pharmaceuticals

Very good diversification

The 3 months correlation between Connect and Sonoma is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Connect Biopharma Holdings and Sonoma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoma Pharmaceuticals and Connect Biopharma 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 Connect Biopharma Holdings 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 Connect Biopharma i.e., Connect Biopharma and Sonoma Pharmaceuticals go up and down completely randomly.

Pair Corralation between Connect Biopharma and Sonoma Pharmaceuticals

Given the investment horizon of 90 days Connect Biopharma Holdings is expected to under-perform the Sonoma Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Connect Biopharma Holdings is 1.54 times less risky than Sonoma Pharmaceuticals. The stock trades about -0.04 of its potential returns per unit of risk. The Sonoma Pharmaceuticals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  275.00  in Sonoma Pharmaceuticals on December 26, 2024 and sell it today you would earn a total of  50.00  from holding Sonoma Pharmaceuticals or generate 18.18% return on investment over 90 days.

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

Connect Biopharma Holdings  vs.  Sonoma Pharmaceuticals

Connect Biopharma

Risk-Adjusted Performance

Very Weak

Over the last 90 days Connect Biopharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Sonoma Pharmaceuticals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sonoma Pharmaceuticals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Sonoma Pharmaceuticals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Connect Biopharma and Sonoma Pharmaceuticals

The main advantage of trading using opposite Connect Biopharma and Sonoma Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Connect Biopharma 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 Connect Biopharma Holdings 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.