Correlation Between Kala Pharmaceuticals and Phibro Animal

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

By analyzing existing cross correlation between Kala Pharmaceuticals and Phibro Animal Health, you can compare the effects of market volatilities on Kala Pharmaceuticals and Phibro Animal 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 Kala Pharmaceuticals with a short position of Phibro Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kala Pharmaceuticals and Phibro Animal.

Diversification Opportunities for Kala Pharmaceuticals and Phibro Animal

0.4

Correlation Coefficient

Kala Pharmaceuticals  Phibro Animal

Very weak diversification

The 3 months correlation between Kala and Phibro is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Kala Pharmaceuticals and Phibro Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phibro Animal Health and Kala 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 Kala Pharmaceuticals are associated (or correlated) with Phibro Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phibro Animal Health has no effect on the direction of Kala Pharmaceuticals i.e., Kala Pharmaceuticals and Phibro Animal go up and down completely randomly.

Pair Corralation between Kala Pharmaceuticals and Phibro Animal

Given the investment horizon of 90 days Kala Pharmaceuticals is expected to generate 1.43 times less return on investment than Phibro Animal. In addition to that, Kala Pharmaceuticals is 1.94 times more volatile than Phibro Animal Health. It trades about 0.01 of its total potential returns per unit of risk. Phibro Animal Health is currently generating about 0.04 per unit of volatility. If you would invest  2,087  in Phibro Animal Health on December 28, 2024 and sell it today you would earn a total of  81.00  from holding Phibro Animal Health or generate 3.88% return on investment over 90 days.

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

Kala Pharmaceuticals  vs.  Phibro Animal Health

Kala Pharmaceuticals

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kala Pharmaceuticals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Kala Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Phibro Animal Health

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Phibro Animal Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Phibro Animal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Kala Pharmaceuticals and Phibro Animal

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

The idea behind Kala Pharmaceuticals and Phibro Animal Health 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.