Correlation Between CSL and Jazz Pharmaceuticals

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

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

Diversification Opportunities for CSL and Jazz Pharmaceuticals

-0.63

Correlation Coefficient

CSL  Jazz Pharmaceuticals

Excellent diversification

The 3 months correlation between CSL and Jazz is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding CSL Limited and Jazz Pharmaceuticals plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jazz Pharmaceuticals plc and CSL 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 CSL Limited are associated (or correlated) with Jazz Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jazz Pharmaceuticals plc has no effect on the direction of CSL i.e., CSL and Jazz Pharmaceuticals go up and down completely randomly.

Pair Corralation between CSL and Jazz Pharmaceuticals

Assuming the 90 days horizon CSL is expected to generate 1.53 times less return on investment than Jazz Pharmaceuticals. But when comparing it to its historical volatility, CSL Limited is 1.43 times less risky than Jazz Pharmaceuticals. It trades about 0.04 of its potential returns per unit of risk. Jazz Pharmaceuticals plc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,130  in Jazz Pharmaceuticals plc on September 23, 2024 and sell it today you would earn a total of  1,555  from holding Jazz Pharmaceuticals plc or generate 15.35% return on investment over 90 days.

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

CSL Limited  vs.  Jazz Pharmaceuticals plc

CSL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CSL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Jazz Pharmaceuticals plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jazz Pharmaceuticals plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Jazz Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CSL and Jazz Pharmaceuticals

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

The idea behind CSL Limited and Jazz Pharmaceuticals plc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.