Correlation Between Sappe Public and DOD Biotech

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

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

Diversification Opportunities for Sappe Public and DOD Biotech

0.03

Correlation Coefficient

Sappe Public  DOD Biotech

Significant diversification

The 3 months correlation between Sappe and DOD is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sappe Public and DOD Biotech Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOD Biotech Public and Sappe Public 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 Sappe Public are associated (or correlated) with DOD Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOD Biotech Public has no effect on the direction of Sappe Public i.e., Sappe Public and DOD Biotech go up and down completely randomly.

Pair Corralation between Sappe Public and DOD Biotech

Assuming the 90 days trading horizon Sappe Public is expected to generate 1.07 times more return on investment than DOD Biotech. However, Sappe Public is 1.07 times more volatile than DOD Biotech Public. It trades about -0.36 of its potential returns per unit of risk. DOD Biotech Public is currently generating about -0.43 per unit of risk. If you would invest  7,525  in Sappe Public on October 13, 2024 and sell it today you would lose (1,425) from holding Sappe Public or give up 18.94% of portfolio value over 90 days.

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

Sappe Public  vs.  DOD Biotech Public

Sappe Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sappe Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Sappe Public is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

DOD Biotech Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DOD Biotech Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Sappe Public and DOD Biotech

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

The idea behind Sappe Public and DOD Biotech Public 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.