Correlation Between Durect and China Pharma

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

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

Diversification Opportunities for Durect and China Pharma

0.78

Correlation Coefficient

Durect  China Pharma

Poor diversification

The 3 months correlation between Durect and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Durect 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 Durect 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 Durect 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 Durect i.e., Durect and China Pharma go up and down completely randomly.

Pair Corralation between Durect and China Pharma

Given the investment horizon of 90 days Durect is expected to generate 1.17 times more return on investment than China Pharma. However, Durect is 1.17 times more volatile than China Pharma Holdings. It trades about -0.02 of its potential returns per unit of risk. China Pharma Holdings is currently generating about -0.05 per unit of risk. If you would invest  560.00  in Durect on October 3, 2024 and sell it today you would lose (485.00) from holding Durect or give up 86.61% of portfolio value over 90 days.

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

Durect  vs.  China Pharma Holdings

Durect

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Durect has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Pharma Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Pharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, China Pharma is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Durect and China Pharma

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

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.