Correlation Between Ipsen SA and Teva Pharmaceutical

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

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

Diversification Opportunities for Ipsen SA and Teva Pharmaceutical

-0.07

Correlation Coefficient

Ipsen SA  Teva Pharmaceutical

Good diversification

The 3 months correlation between Ipsen and Teva is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ipsen SA and Teva Pharmaceutical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teva Pharmaceutical and Ipsen SA 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 Ipsen SA are associated (or correlated) with Teva Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teva Pharmaceutical has no effect on the direction of Ipsen SA i.e., Ipsen SA and Teva Pharmaceutical go up and down completely randomly.

Pair Corralation between Ipsen SA and Teva Pharmaceutical

Assuming the 90 days horizon Ipsen SA is expected to generate 91.82 times less return on investment than Teva Pharmaceutical. But when comparing it to its historical volatility, Ipsen SA is 3.78 times less risky than Teva Pharmaceutical. It trades about 0.01 of its potential returns per unit of risk. Teva Pharmaceutical Industries is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,620  in Teva Pharmaceutical Industries on September 22, 2024 and sell it today you would earn a total of  500.00  from holding Teva Pharmaceutical Industries or generate 30.86% return on investment over 90 days.

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

Ipsen SA  vs.  Teva Pharmaceutical Industries

Ipsen SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Teva Pharmaceutical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharmaceutical Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Teva Pharmaceutical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ipsen SA and Teva Pharmaceutical

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

The idea behind Ipsen SA and Teva Pharmaceutical Industries 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.