Correlation Between Societatea and Farmaceutica

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

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

Diversification Opportunities for Societatea and Farmaceutica

0.2

Correlation Coefficient

Societatea  Farmaceutica

Modest diversification

The 3 months correlation between Societatea and Farmaceutica is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Societatea de Investitii and Farmaceutica R in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmaceutica R and Societatea 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 Societatea de Investitii are associated (or correlated) with Farmaceutica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmaceutica R has no effect on the direction of Societatea i.e., Societatea and Farmaceutica go up and down completely randomly.

Pair Corralation between Societatea and Farmaceutica

Assuming the 90 days trading horizon Societatea de Investitii is expected to generate 0.51 times more return on investment than Farmaceutica. However, Societatea de Investitii is 1.94 times less risky than Farmaceutica. It trades about -0.01 of its potential returns per unit of risk. Farmaceutica R is currently generating about -0.14 per unit of risk. If you would invest  174.00  in Societatea de Investitii on September 3, 2024 and sell it today you would lose (2.00) from holding Societatea de Investitii or give up 1.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Societatea de Investitii  vs.  Farmaceutica R

Societatea de Investitii

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 weak 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.

Pair Trading with Societatea and Farmaceutica

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

The idea behind Societatea de Investitii and Farmaceutica R 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.