Correlation Between Jazz Pharmaceuticals and Deutsche Wohnen

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

By analyzing existing cross correlation between Jazz Pharmaceuticals plc and Deutsche Wohnen SE, you can compare the effects of market volatilities on Jazz Pharmaceuticals and Deutsche Wohnen 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 Jazz Pharmaceuticals with a short position of Deutsche Wohnen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jazz Pharmaceuticals and Deutsche Wohnen.

Diversification Opportunities for Jazz Pharmaceuticals and Deutsche Wohnen

-0.42

Correlation Coefficient

Jazz Pharmaceuticals  Deutsche Wohnen

Very good diversification

The 3 months correlation between Jazz and Deutsche is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Jazz Pharmaceuticals plc and Deutsche Wohnen SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Wohnen SE and Jazz Pharmaceuticals 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 Jazz Pharmaceuticals plc are associated (or correlated) with Deutsche Wohnen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Wohnen SE has no effect on the direction of Jazz Pharmaceuticals i.e., Jazz Pharmaceuticals and Deutsche Wohnen go up and down completely randomly.

Pair Corralation between Jazz Pharmaceuticals and Deutsche Wohnen

Assuming the 90 days horizon Jazz Pharmaceuticals plc is expected to under-perform the Deutsche Wohnen. But the stock apears to be less risky and, when comparing its historical volatility, Jazz Pharmaceuticals plc is 1.79 times less risky than Deutsche Wohnen. The stock trades about -0.13 of its potential returns per unit of risk. The Deutsche Wohnen SE is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,280  in Deutsche Wohnen SE on September 23, 2024 and sell it today you would earn a total of  50.00  from holding Deutsche Wohnen SE or generate 2.19% return on investment over 90 days.

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

Jazz Pharmaceuticals plc  vs.  Deutsche Wohnen SE

Jazz Pharmaceuticals plc

Risk-Adjusted Performance

11 of 100

Good

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

Deutsche Wohnen SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Wohnen SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Jazz Pharmaceuticals and Deutsche Wohnen

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

The idea behind Jazz Pharmaceuticals plc and Deutsche Wohnen SE 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.