Correlation Between Patterson Companies and China Medicine

Can any of the company-specific risk be diversified away by investing in both Patterson Companies and China Medicine 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 Patterson Companies and China Medicine into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Patterson Companies and China Medicine

0.6

Correlation Coefficient

Patterson Companies  China Medicine

Poor diversification

The 3 months correlation between Patterson and China is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Patterson Companies and China Medicine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medicine and Patterson Companies 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 Patterson Companies are associated (or correlated) with China Medicine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medicine has no effect on the direction of Patterson Companies i.e., Patterson Companies and China Medicine go up and down completely randomly.

Pair Corralation between Patterson Companies and China Medicine

Given the investment horizon of 90 days Patterson Companies is expected to generate 3535.11 times less return on investment than China Medicine. But when comparing it to its historical volatility, Patterson Companies is 487.66 times less risky than China Medicine. It trades about 0.02 of its potential returns per unit of risk. China Medicine is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.30  in China Medicine on October 26, 2024 and sell it today you would lose (0.29) from holding China Medicine or give up 96.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.0%
Values	Daily Returns

Patterson Companies  vs.  China Medicine

Patterson Companies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Patterson Companies are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Patterson Companies displayed solid returns over the last few months and may actually be approaching a breakup point.

China Medicine

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Medicine are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, China Medicine exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Patterson Companies and China Medicine

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

The idea behind Patterson Companies and China Medicine 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.