Correlation Between Eagle Pharmaceuticals and Elite Pharma

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

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

Diversification Opportunities for Eagle Pharmaceuticals and Elite Pharma

-0.68

Correlation Coefficient

Eagle Pharmaceuticals  Elite Pharma

Excellent diversification

The 3 months correlation between Eagle and Elite is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Pharmaceuticals and Elite Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Pharma and Eagle Pharmaceuticals 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 Eagle Pharmaceuticals are associated (or correlated) with Elite Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Pharma has no effect on the direction of Eagle Pharmaceuticals i.e., Eagle Pharmaceuticals and Elite Pharma go up and down completely randomly.

Pair Corralation between Eagle Pharmaceuticals and Elite Pharma

Given the investment horizon of 90 days Eagle Pharmaceuticals is expected to under-perform the Elite Pharma. But the pink sheet apears to be less risky and, when comparing its historical volatility, Eagle Pharmaceuticals is 2.01 times less risky than Elite Pharma. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Elite Pharma is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4.00  in Elite Pharma on September 29, 2024 and sell it today you would lose (0.27) from holding Elite Pharma or give up 6.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	27.75%
Values	Daily Returns

Eagle Pharmaceuticals  vs.  Elite Pharma

Eagle Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Elite Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elite Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Elite Pharma is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eagle Pharmaceuticals and Elite Pharma

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

The idea behind Eagle Pharmaceuticals and Elite 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.