Correlation Between Swiss Leader and COSMO Pharmaceuticals

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

By analyzing existing cross correlation between Swiss Leader Price and COSMO Pharmaceuticals SA, you can compare the effects of market volatilities on Swiss Leader and COSMO Pharmaceuticals 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 Swiss Leader with a short position of COSMO Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and COSMO Pharmaceuticals.

Diversification Opportunities for Swiss Leader and COSMO Pharmaceuticals

0.69

Correlation Coefficient

Swiss Leader  COSMO Pharmaceuticals

Poor diversification

The 3 months correlation between Swiss and COSMO is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and COSMO Pharmaceuticals SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSMO Pharmaceuticals and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with COSMO Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSMO Pharmaceuticals has no effect on the direction of Swiss Leader i.e., Swiss Leader and COSMO Pharmaceuticals go up and down completely randomly.

Pair Corralation between Swiss Leader and COSMO Pharmaceuticals

Assuming the 90 days trading horizon Swiss Leader Price is expected to generate 0.58 times more return on investment than COSMO Pharmaceuticals. However, Swiss Leader Price is 1.72 times less risky than COSMO Pharmaceuticals. It trades about 0.08 of its potential returns per unit of risk. COSMO Pharmaceuticals SA is currently generating about -0.28 per unit of risk. If you would invest  192,458  in Swiss Leader Price on September 14, 2024 and sell it today you would earn a total of  1,684  from holding Swiss Leader Price or generate 0.87% return on investment over 90 days.

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

Swiss Leader Price  vs.  COSMO Pharmaceuticals SA

Pair Trading with Swiss Leader and COSMO Pharmaceuticals

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

The idea behind Swiss Leader Price and COSMO Pharmaceuticals SA 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.