Correlation Between Enanta Pharmaceuticals and Sonoma Pharmaceuticals

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

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

Diversification Opportunities for Enanta Pharmaceuticals and Sonoma Pharmaceuticals

0.05

Correlation Coefficient

Enanta Pharmaceuticals  Sonoma Pharmaceuticals

Significant diversification

The 3 months correlation between Enanta and Sonoma is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Enanta Pharmaceuticals and Sonoma Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoma Pharmaceuticals and Enanta 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 Enanta Pharmaceuticals are associated (or correlated) with Sonoma Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonoma Pharmaceuticals has no effect on the direction of Enanta Pharmaceuticals i.e., Enanta Pharmaceuticals and Sonoma Pharmaceuticals go up and down completely randomly.

Pair Corralation between Enanta Pharmaceuticals and Sonoma Pharmaceuticals

Given the investment horizon of 90 days Enanta Pharmaceuticals is expected to generate 2.17 times more return on investment than Sonoma Pharmaceuticals. However, Enanta Pharmaceuticals is 2.17 times more volatile than Sonoma Pharmaceuticals. It trades about 0.0 of its potential returns per unit of risk. Sonoma Pharmaceuticals is currently generating about -0.11 per unit of risk. If you would invest  857.00  in Enanta Pharmaceuticals on December 2, 2024 and sell it today you would lose (79.00) from holding Enanta Pharmaceuticals or give up 9.22% of portfolio value over 90 days.

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

Enanta Pharmaceuticals  vs.  Sonoma Pharmaceuticals

Enanta Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enanta Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Enanta Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Sonoma Pharmaceuticals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Enanta Pharmaceuticals and Sonoma Pharmaceuticals

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

The idea behind Enanta Pharmaceuticals and Sonoma Pharmaceuticals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.