Correlation Between Phibro Animal and Kala Pharmaceuticals

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

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

Diversification Opportunities for Phibro Animal and Kala Pharmaceuticals

0.4

Correlation Coefficient

Phibro Animal  Kala Pharmaceuticals

Very weak diversification

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

Pair Corralation between Phibro Animal and Kala Pharmaceuticals

Given the investment horizon of 90 days Phibro Animal Health is expected to generate 0.52 times more return on investment than Kala Pharmaceuticals. However, Phibro Animal Health is 1.94 times less risky than Kala Pharmaceuticals. It trades about 0.04 of its potential returns per unit of risk. Kala Pharmaceuticals is currently generating about 0.01 per unit of risk. 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

Phibro Animal Health  vs.  Kala Pharmaceuticals

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.

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.

Pair Trading with Phibro Animal and Kala Pharmaceuticals

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

The idea behind Phibro Animal Health and Kala Pharmaceuticals 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.