Correlation Between Pacific Health and Pharma Bio

Can any of the company-specific risk be diversified away by investing in both Pacific Health and Pharma Bio 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 Pacific Health and Pharma Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pacific Health Care and Pharma Bio Serv, you can compare the effects of market volatilities on Pacific Health and Pharma Bio 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 Pacific Health with a short position of Pharma Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pacific Health and Pharma Bio.

Diversification Opportunities for Pacific Health and Pharma Bio

0.25

Correlation Coefficient

Pacific Health  Pharma Bio

Modest diversification

The 3 months correlation between Pacific and Pharma is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Health Care and Pharma Bio Serv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharma Bio Serv and Pacific Health 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 Pacific Health Care are associated (or correlated) with Pharma Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharma Bio Serv has no effect on the direction of Pacific Health i.e., Pacific Health and Pharma Bio go up and down completely randomly.

Pair Corralation between Pacific Health and Pharma Bio

Given the investment horizon of 90 days Pacific Health Care is expected to generate 0.64 times more return on investment than Pharma Bio. However, Pacific Health Care is 1.55 times less risky than Pharma Bio. It trades about 0.04 of its potential returns per unit of risk. Pharma Bio Serv is currently generating about 0.01 per unit of risk. If you would invest  70.00  in Pacific Health Care on September 14, 2024 and sell it today you would earn a total of  14.00  from holding Pacific Health Care or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.9%
Values	Daily Returns

Pacific Health Care  vs.  Pharma Bio Serv

Pacific Health Care

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Health Care are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, Pacific Health is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pharma Bio Serv

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pharma Bio Serv are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Pharma Bio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Pacific Health and Pharma Bio

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

The idea behind Pacific Health Care and Pharma Bio Serv 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.