Correlation Between Catalent and NewAmsterdam Pharma

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

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

Diversification Opportunities for Catalent and NewAmsterdam Pharma

-0.42

Correlation Coefficient

Catalent  NewAmsterdam Pharma

Very good diversification

The 3 months correlation between Catalent and NewAmsterdam is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Catalent and NewAmsterdam Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewAmsterdam Pharma and Catalent 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 Catalent are associated (or correlated) with NewAmsterdam Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewAmsterdam Pharma has no effect on the direction of Catalent i.e., Catalent and NewAmsterdam Pharma go up and down completely randomly.

Pair Corralation between Catalent and NewAmsterdam Pharma

Given the investment horizon of 90 days Catalent is expected to generate 26.53 times less return on investment than NewAmsterdam Pharma. But when comparing it to its historical volatility, Catalent is 10.84 times less risky than NewAmsterdam Pharma. It trades about 0.03 of its potential returns per unit of risk. NewAmsterdam Pharma is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  697.00  in NewAmsterdam Pharma on September 4, 2024 and sell it today you would earn a total of  153.00  from holding NewAmsterdam Pharma or generate 21.95% return on investment over 90 days.

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

Catalent  vs.  NewAmsterdam Pharma

Catalent

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

NewAmsterdam Pharma

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NewAmsterdam Pharma are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, NewAmsterdam Pharma showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Catalent and NewAmsterdam Pharma

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

The idea behind Catalent and NewAmsterdam Pharma 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.