Correlation Between Sonic Healthcare and Charles River

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

By analyzing existing cross correlation between Sonic Healthcare Ltd and Charles River Laboratories, you can compare the effects of market volatilities on Sonic Healthcare and Charles River 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 Sonic Healthcare with a short position of Charles River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sonic Healthcare and Charles River.

Diversification Opportunities for Sonic Healthcare and Charles River

0.38

Correlation Coefficient

Sonic Healthcare  Charles River

Weak diversification

The 3 months correlation between Sonic and Charles is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Healthcare Ltd and Charles River Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles River Labora and Sonic Healthcare 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 Sonic Healthcare Ltd are associated (or correlated) with Charles River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles River Labora has no effect on the direction of Sonic Healthcare i.e., Sonic Healthcare and Charles River go up and down completely randomly.

Pair Corralation between Sonic Healthcare and Charles River

Assuming the 90 days horizon Sonic Healthcare Ltd is expected to generate 0.68 times more return on investment than Charles River. However, Sonic Healthcare Ltd is 1.47 times less risky than Charles River. It trades about 0.0 of its potential returns per unit of risk. Charles River Laboratories is currently generating about -0.06 per unit of risk. If you would invest  1,794  in Sonic Healthcare Ltd on October 27, 2024 and sell it today you would lose (19.00) from holding Sonic Healthcare Ltd or give up 1.06% of portfolio value over 90 days.

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

Sonic Healthcare Ltd  vs.  Charles River Laboratories

Sonic Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonic Healthcare Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Sonic Healthcare is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Charles River Labora

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charles River Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Sonic Healthcare and Charles River

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

The idea behind Sonic Healthcare Ltd and Charles River Laboratories 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.