Correlation Between Cronos and China Pharma

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

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

Diversification Opportunities for Cronos and China Pharma

0.81

Correlation Coefficient

Cronos  China Pharma

Very poor diversification

The 3 months correlation between Cronos and China is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cronos Group 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 Cronos 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 Cronos Group 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 Cronos i.e., Cronos and China Pharma go up and down completely randomly.

Pair Corralation between Cronos and China Pharma

Given the investment horizon of 90 days Cronos Group is expected to under-perform the China Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Cronos Group is 3.8 times less risky than China Pharma. The stock trades about -0.13 of its potential returns per unit of risk. The China Pharma Holdings is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  20.00  in China Pharma Holdings on October 1, 2024 and sell it today you would lose (1.69) from holding China Pharma Holdings or give up 8.45% of portfolio value over 90 days.

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

Cronos Group  vs.  China Pharma Holdings

Cronos Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cronos Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Cronos is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

China Pharma Holdings

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days China Pharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Cronos and China Pharma

The main advantage of trading using opposite Cronos and China Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cronos 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 Cronos Group 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.