Correlation Between Defence Therapeutics and GB Sciences

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

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

Diversification Opportunities for Defence Therapeutics and GB Sciences

-0.6

Correlation Coefficient

Defence Therapeutics  GB Sciences

Excellent diversification

The 3 months correlation between Defence and GBLX is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Defence Therapeutics and GB Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GB Sciences and Defence Therapeutics 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 Defence Therapeutics are associated (or correlated) with GB Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GB Sciences has no effect on the direction of Defence Therapeutics i.e., Defence Therapeutics and GB Sciences go up and down completely randomly.

Pair Corralation between Defence Therapeutics and GB Sciences

Assuming the 90 days horizon Defence Therapeutics is expected to generate 1.99 times less return on investment than GB Sciences. But when comparing it to its historical volatility, Defence Therapeutics is 4.51 times less risky than GB Sciences. It trades about 0.22 of its potential returns per unit of risk. GB Sciences is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  0.42  in GB Sciences on December 26, 2024 and sell it today you would lose (0.39) from holding GB Sciences or give up 92.86% of portfolio value over 90 days.

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

Defence Therapeutics  vs.  GB Sciences

Defence Therapeutics

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Defence Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

GB Sciences

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GB Sciences are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, GB Sciences showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defence Therapeutics and GB Sciences

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

The idea behind Defence Therapeutics and GB Sciences 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.