Correlation Between NovaBay Pharmaceuticals and Protara Therapeutics

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

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

Diversification Opportunities for NovaBay Pharmaceuticals and Protara Therapeutics

-0.54

Correlation Coefficient

NovaBay Pharmaceuticals  Protara Therapeutics

Excellent diversification

The 3 months correlation between NovaBay and Protara is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding NovaBay Pharmaceuticals and Protara Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Protara Therapeutics and NovaBay 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 NovaBay Pharmaceuticals are associated (or correlated) with Protara Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Protara Therapeutics has no effect on the direction of NovaBay Pharmaceuticals i.e., NovaBay Pharmaceuticals and Protara Therapeutics go up and down completely randomly.

Pair Corralation between NovaBay Pharmaceuticals and Protara Therapeutics

Considering the 90-day investment horizon NovaBay Pharmaceuticals is expected to under-perform the Protara Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, NovaBay Pharmaceuticals is 3.92 times less risky than Protara Therapeutics. The stock trades about -0.24 of its potential returns per unit of risk. The Protara Therapeutics is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  239.00  in Protara Therapeutics on September 23, 2024 and sell it today you would earn a total of  300.00  from holding Protara Therapeutics or generate 125.52% return on investment over 90 days.

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

NovaBay Pharmaceuticals  vs.  Protara Therapeutics

NovaBay Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NovaBay Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Protara Therapeutics

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Protara Therapeutics are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Protara Therapeutics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NovaBay Pharmaceuticals and Protara Therapeutics

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

The idea behind NovaBay Pharmaceuticals and Protara 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.