Correlation Between Collegium Pharmaceutical and Sonoma Pharmaceuticals

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

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

Diversification Opportunities for Collegium Pharmaceutical and Sonoma Pharmaceuticals

0.51

Correlation Coefficient

Collegium Pharmaceutical  Sonoma Pharmaceuticals

Very weak diversification

The 3 months correlation between Collegium and Sonoma is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Collegium Pharmaceutical and Sonoma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoma Pharmaceuticals and Collegium Pharmaceutical 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 Collegium Pharmaceutical 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 Collegium Pharmaceutical i.e., Collegium Pharmaceutical and Sonoma Pharmaceuticals go up and down completely randomly.

Pair Corralation between Collegium Pharmaceutical and Sonoma Pharmaceuticals

Given the investment horizon of 90 days Collegium Pharmaceutical is expected to generate 2.42 times more return on investment than Sonoma Pharmaceuticals. However, Collegium Pharmaceutical is 2.42 times more volatile than Sonoma Pharmaceuticals. It trades about 0.22 of its potential returns per unit of risk. Sonoma Pharmaceuticals is currently generating about -0.03 per unit of risk. If you would invest  2,915  in Collegium Pharmaceutical on October 24, 2024 and sell it today you would earn a total of  420.00  from holding Collegium Pharmaceutical or generate 14.41% return on investment over 90 days.

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

Collegium Pharmaceutical  vs.  Sonoma Pharmaceuticals

Collegium Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Collegium Pharmaceutical is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sonoma Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Collegium Pharmaceutical and Sonoma Pharmaceuticals

The main advantage of trading using opposite Collegium Pharmaceutical and Sonoma Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Collegium Pharmaceutical 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 Collegium Pharmaceutical 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.