Correlation Between ESSA Pharma and China Pharma

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

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

Diversification Opportunities for ESSA Pharma and China Pharma

0.77

Correlation Coefficient

ESSA Pharma  China Pharma

Poor diversification

The 3 months correlation between ESSA and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma i.e., ESSA Pharma and China Pharma go up and down completely randomly.

Pair Corralation between ESSA Pharma and China Pharma

Given the investment horizon of 90 days ESSA Pharma is expected to generate 1.03 times more return on investment than China Pharma. However, ESSA Pharma is 1.03 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  321.00  in ESSA Pharma on October 3, 2024 and sell it today you would lose (142.00) from holding ESSA Pharma or give up 44.24% of portfolio value over 90 days.

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

ESSA Pharma  vs.  China Pharma Holdings

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward 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 ESSA Pharma and China Pharma

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

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.