Correlation Between Dermapharm Holding and SIMCERE PHARMAC

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

By analyzing existing cross correlation between Dermapharm Holding SE and SIMCERE PHARMAC GRP, you can compare the effects of market volatilities on Dermapharm Holding and SIMCERE PHARMAC 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 Dermapharm Holding with a short position of SIMCERE PHARMAC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dermapharm Holding and SIMCERE PHARMAC.

Diversification Opportunities for Dermapharm Holding and SIMCERE PHARMAC

0.4

Correlation Coefficient

Dermapharm Holding  SIMCERE PHARMAC

Very weak diversification

The 3 months correlation between Dermapharm and SIMCERE is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dermapharm Holding SE and SIMCERE PHARMAC GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMCERE PHARMAC GRP and Dermapharm Holding 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 Dermapharm Holding SE are associated (or correlated) with SIMCERE PHARMAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMCERE PHARMAC GRP has no effect on the direction of Dermapharm Holding i.e., Dermapharm Holding and SIMCERE PHARMAC go up and down completely randomly.

Pair Corralation between Dermapharm Holding and SIMCERE PHARMAC

Assuming the 90 days trading horizon Dermapharm Holding is expected to generate 1.6 times less return on investment than SIMCERE PHARMAC. But when comparing it to its historical volatility, Dermapharm Holding SE is 1.53 times less risky than SIMCERE PHARMAC. It trades about 0.07 of its potential returns per unit of risk. SIMCERE PHARMAC GRP is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  72.00  in SIMCERE PHARMAC GRP on September 26, 2024 and sell it today you would earn a total of  9.00  from holding SIMCERE PHARMAC GRP or generate 12.5% return on investment over 90 days.

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

Dermapharm Holding SE  vs.  SIMCERE PHARMAC GRP

Dermapharm Holding

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dermapharm Holding SE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dermapharm Holding may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SIMCERE PHARMAC GRP

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SIMCERE PHARMAC GRP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SIMCERE PHARMAC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dermapharm Holding and SIMCERE PHARMAC

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

The idea behind Dermapharm Holding SE and SIMCERE PHARMAC GRP 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.