Correlation Between Sino Biopharmaceutica and Pharming Group

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

By analyzing existing cross correlation between Sino Biopharmaceutical Limited and Pharming Group NV, you can compare the effects of market volatilities on Sino Biopharmaceutica and Pharming Group 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 Sino Biopharmaceutica with a short position of Pharming Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sino Biopharmaceutica and Pharming Group.

Diversification Opportunities for Sino Biopharmaceutica and Pharming Group

0.09

Correlation Coefficient

Sino Biopharmaceutica  Pharming Group

Significant diversification

The 3 months correlation between Sino and Pharming is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Sino Biopharmaceutical Limited and Pharming Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharming Group NV and Sino Biopharmaceutica 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 Sino Biopharmaceutical Limited are associated (or correlated) with Pharming Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharming Group NV has no effect on the direction of Sino Biopharmaceutica i.e., Sino Biopharmaceutica and Pharming Group go up and down completely randomly.

Pair Corralation between Sino Biopharmaceutica and Pharming Group

Assuming the 90 days horizon Sino Biopharmaceutical Limited is expected to generate 0.84 times more return on investment than Pharming Group. However, Sino Biopharmaceutical Limited is 1.2 times less risky than Pharming Group. It trades about 0.08 of its potential returns per unit of risk. Pharming Group NV is currently generating about -0.04 per unit of risk. If you would invest  41.00  in Sino Biopharmaceutical Limited on December 29, 2024 and sell it today you would earn a total of  4.00  from holding Sino Biopharmaceutical Limited or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Sino Biopharmaceutical Limited  vs.  Pharming Group NV

Sino Biopharmaceutical

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sino Biopharmaceutical Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Sino Biopharmaceutica may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pharming Group NV

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pharming Group NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Pharming Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sino Biopharmaceutica and Pharming Group

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

The idea behind Sino Biopharmaceutical Limited and Pharming Group NV 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.