Correlation Between Prothena Plc and Scpharmaceuticals

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

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

Diversification Opportunities for Prothena Plc and Scpharmaceuticals

0.85

Correlation Coefficient

Prothena Plc  Scpharmaceuticals

Very poor diversification

The 3 months correlation between Prothena and Scpharmaceuticals is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Prothena plc and Scpharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scpharmaceuticals and Prothena Plc 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 Prothena plc are associated (or correlated) with Scpharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scpharmaceuticals has no effect on the direction of Prothena Plc i.e., Prothena Plc and Scpharmaceuticals go up and down completely randomly.

Pair Corralation between Prothena Plc and Scpharmaceuticals

Given the investment horizon of 90 days Prothena plc is expected to generate 3.19 times more return on investment than Scpharmaceuticals. However, Prothena Plc is 3.19 times more volatile than Scpharmaceuticals. It trades about 0.01 of its potential returns per unit of risk. Scpharmaceuticals is currently generating about -0.08 per unit of risk. If you would invest  1,621  in Prothena plc on September 30, 2024 and sell it today you would lose (107.00) from holding Prothena plc or give up 6.6% of portfolio value over 90 days.

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

Prothena plc  vs.  Scpharmaceuticals

Prothena plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prothena plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Prothena Plc is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Scpharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scpharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Prothena Plc and Scpharmaceuticals

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

The idea behind Prothena plc and Scpharmaceuticals 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 Transaction History module to view history of all your transactions and understand their impact on performance.