Correlation Between GB Sciences and Defence Therapeutics

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

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

Diversification Opportunities for GB Sciences and Defence Therapeutics

0.02

Correlation Coefficient

GB Sciences  Defence Therapeutics

Significant diversification

The 3 months correlation between GBLX and Defence is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding GB Sciences and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics and GB Sciences 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 GB Sciences are associated (or correlated) with Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of GB Sciences i.e., GB Sciences and Defence Therapeutics go up and down completely randomly.

Pair Corralation between GB Sciences and Defence Therapeutics

Given the investment horizon of 90 days GB Sciences is expected to generate 9.25 times more return on investment than Defence Therapeutics. However, GB Sciences is 9.25 times more volatile than Defence Therapeutics. It trades about 0.07 of its potential returns per unit of risk. Defence Therapeutics is currently generating about -0.01 per unit of risk. If you would invest  2.10  in GB Sciences on September 15, 2024 and sell it today you would lose (1.56) from holding GB Sciences or give up 74.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

GB Sciences  vs.  Defence Therapeutics

GB Sciences

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GB Sciences are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, GB Sciences showed solid returns over the last few months and may actually be approaching a breakup point.

Defence Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Defence Therapeutics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GB Sciences and Defence Therapeutics

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

The idea behind GB Sciences and Defence 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.