Correlation Between Farmaceutica and Rompetrol Rafi

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

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

Diversification Opportunities for Farmaceutica and Rompetrol Rafi

0.8

Correlation Coefficient

Farmaceutica  Rompetrol Rafi

Very poor diversification

The 3 months correlation between Farmaceutica and Rompetrol is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Farmaceutica R and Rompetrol Rafi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rompetrol Rafi and Farmaceutica 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 Farmaceutica R are associated (or correlated) with Rompetrol Rafi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rompetrol Rafi has no effect on the direction of Farmaceutica i.e., Farmaceutica and Rompetrol Rafi go up and down completely randomly.

Pair Corralation between Farmaceutica and Rompetrol Rafi

Assuming the 90 days trading horizon Farmaceutica R is expected to under-perform the Rompetrol Rafi. But the stock apears to be less risky and, when comparing its historical volatility, Farmaceutica R is 1.55 times less risky than Rompetrol Rafi. The stock trades about -0.11 of its potential returns per unit of risk. The Rompetrol Rafi is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7.25  in Rompetrol Rafi on September 27, 2024 and sell it today you would lose (0.50) from holding Rompetrol Rafi or give up 6.9% of portfolio value over 90 days.

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

Farmaceutica R  vs.  Rompetrol Rafi

Farmaceutica R

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmaceutica R has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Rompetrol Rafi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rompetrol Rafi has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Rompetrol Rafi is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Farmaceutica and Rompetrol Rafi

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

The idea behind Farmaceutica R and Rompetrol Rafi 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.