Correlation Between Defence Therapeutics and Pharming Group

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

By analyzing existing cross correlation between Defence Therapeutics and Pharming Group NV, you can compare the effects of market volatilities on Defence Therapeutics and Pharming Group 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 Pharming Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defence Therapeutics and Pharming Group.

Diversification Opportunities for Defence Therapeutics and Pharming Group

0.16

Correlation Coefficient

Defence Therapeutics  Pharming Group

Average diversification

The 3 months correlation between Defence and Pharming is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Defence Therapeutics and Pharming Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharming Group NV 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 Pharming Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharming Group NV has no effect on the direction of Defence Therapeutics i.e., Defence Therapeutics and Pharming Group go up and down completely randomly.

Pair Corralation between Defence Therapeutics and Pharming Group

Assuming the 90 days horizon Defence Therapeutics is expected to generate 5.21 times more return on investment than Pharming Group. However, Defence Therapeutics is 5.21 times more volatile than Pharming Group NV. It trades about 0.14 of its potential returns per unit of risk. Pharming Group NV is currently generating about 0.12 per unit of risk. If you would invest  41.00  in Defence Therapeutics on December 4, 2024 and sell it today you would earn a total of  38.00  from holding Defence Therapeutics or generate 92.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Defence Therapeutics  vs.  Pharming Group NV

Defence Therapeutics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 10 (%) 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.

Pharming Group NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pharming Group NV are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pharming Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Defence Therapeutics and Pharming Group

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

The idea behind Defence Therapeutics and Pharming Group NV 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.