Correlation Between Sonoma Pharmaceuticals and Biofrontera

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

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

Diversification Opportunities for Sonoma Pharmaceuticals and Biofrontera

-0.23

Correlation Coefficient

Sonoma Pharmaceuticals  Biofrontera

Very good diversification

The 3 months correlation between Sonoma and Biofrontera is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Sonoma Pharmaceuticals and Biofrontera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biofrontera and Sonoma Pharmaceuticals 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 Sonoma Pharmaceuticals are associated (or correlated) with Biofrontera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biofrontera has no effect on the direction of Sonoma Pharmaceuticals i.e., Sonoma Pharmaceuticals and Biofrontera go up and down completely randomly.

Pair Corralation between Sonoma Pharmaceuticals and Biofrontera

Given the investment horizon of 90 days Sonoma Pharmaceuticals is expected to under-perform the Biofrontera. But the stock apears to be less risky and, when comparing its historical volatility, Sonoma Pharmaceuticals is 2.24 times less risky than Biofrontera. The stock trades about -0.31 of its potential returns per unit of risk. The Biofrontera is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  115.00  in Biofrontera on October 8, 2024 and sell it today you would lose (3.00) from holding Biofrontera or give up 2.61% of portfolio value over 90 days.

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

Sonoma Pharmaceuticals  vs.  Biofrontera

Sonoma Pharmaceuticals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonoma Pharmaceuticals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sonoma Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Biofrontera

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Biofrontera are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Biofrontera demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonoma Pharmaceuticals and Biofrontera

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

The idea behind Sonoma Pharmaceuticals and Biofrontera 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.