Correlation Between ESSA Pharma and Hoth Therapeutics

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

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

Diversification Opportunities for ESSA Pharma and Hoth Therapeutics

0.21

Correlation Coefficient

ESSA Pharma  Hoth Therapeutics

Modest diversification

The 3 months correlation between ESSA and Hoth is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Hoth Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hoth Therapeutics 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 Hoth Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hoth Therapeutics has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and Hoth Therapeutics go up and down completely randomly.

Pair Corralation between ESSA Pharma and Hoth Therapeutics

Given the investment horizon of 90 days ESSA Pharma is expected to generate 0.83 times more return on investment than Hoth Therapeutics. However, ESSA Pharma is 1.2 times less risky than Hoth Therapeutics. It trades about 0.02 of its potential returns per unit of risk. Hoth Therapeutics is currently generating about -0.02 per unit of risk. If you would invest  290.00  in ESSA Pharma on September 26, 2024 and sell it today you would lose (129.00) from holding ESSA Pharma or give up 44.48% of portfolio value over 90 days.

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

ESSA Pharma  vs.  Hoth Therapeutics

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Hoth Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hoth Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Hoth Therapeutics 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 Hoth Therapeutics

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

The idea behind ESSA Pharma and Hoth Therapeutics 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.