Correlation Between Connect Biopharma and Teva Pharma

Can any of the company-specific risk be diversified away by investing in both Connect Biopharma and Teva 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 Connect Biopharma and Teva Pharma 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 Teva Pharma Industries, you can compare the effects of market volatilities on Connect Biopharma and Teva 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 Connect Biopharma with a short position of Teva Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Connect Biopharma and Teva Pharma.

Diversification Opportunities for Connect Biopharma and Teva Pharma

0.76

Correlation Coefficient

Connect Biopharma  Teva Pharma

Poor diversification

The 3 months correlation between Connect and Teva is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Connect Biopharma Holdings and Teva Pharma Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teva Pharma Industries 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 Teva Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teva Pharma Industries has no effect on the direction of Connect Biopharma i.e., Connect Biopharma and Teva Pharma go up and down completely randomly.

Pair Corralation between Connect Biopharma and Teva Pharma

Given the investment horizon of 90 days Connect Biopharma Holdings is expected to under-perform the Teva Pharma. In addition to that, Connect Biopharma is 1.41 times more volatile than Teva Pharma Industries. It trades about -0.18 of its total potential returns per unit of risk. Teva Pharma Industries is currently generating about -0.2 per unit of volatility. If you would invest  2,232  in Teva Pharma Industries on December 28, 2024 and sell it today you would lose (683.00) from holding Teva Pharma Industries or give up 30.6% of portfolio value over 90 days.

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

Connect Biopharma Holdings  vs.  Teva Pharma Industries

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Teva Pharma Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teva Pharma Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Connect Biopharma and Teva Pharma

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

The idea behind Connect Biopharma Holdings and Teva Pharma 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.