Correlation Between HOYA and Cara Therapeutics

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

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

Diversification Opportunities for HOYA and Cara Therapeutics

-0.33

Correlation Coefficient

HOYA  Cara Therapeutics

Very good diversification

The 3 months correlation between HOYA and Cara is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding HOYA Corp. and Cara Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cara Therapeutics and HOYA 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 HOYA Corporation are associated (or correlated) with Cara Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cara Therapeutics has no effect on the direction of HOYA i.e., HOYA and Cara Therapeutics go up and down completely randomly.

Pair Corralation between HOYA and Cara Therapeutics

Assuming the 90 days horizon HOYA Corporation is expected to generate 0.97 times more return on investment than Cara Therapeutics. However, HOYA Corporation is 1.04 times less risky than Cara Therapeutics. It trades about 0.08 of its potential returns per unit of risk. Cara Therapeutics is currently generating about -0.04 per unit of risk. If you would invest  1,500  in HOYA Corporation on October 10, 2024 and sell it today you would earn a total of  10,760  from holding HOYA Corporation or generate 717.33% return on investment over 90 days.

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

HOYA Corp.  vs.  Cara Therapeutics

HOYA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HOYA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, HOYA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Cara Therapeutics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cara Therapeutics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cara Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HOYA and Cara Therapeutics

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

The idea behind HOYA Corporation and Cara 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.