Correlation Between Sonoma Pharmaceuticals and Collegium Pharmaceutical

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

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

Diversification Opportunities for Sonoma Pharmaceuticals and Collegium Pharmaceutical

0.48

Correlation Coefficient

Sonoma Pharmaceuticals  Collegium Pharmaceutical

Very weak diversification

The 3 months correlation between Sonoma and Collegium is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sonoma Pharmaceuticals and Collegium Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collegium Pharmaceutical 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 Collegium Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collegium Pharmaceutical has no effect on the direction of Sonoma Pharmaceuticals i.e., Sonoma Pharmaceuticals and Collegium Pharmaceutical go up and down completely randomly.

Pair Corralation between Sonoma Pharmaceuticals and Collegium Pharmaceutical

Given the investment horizon of 90 days Sonoma Pharmaceuticals is expected to under-perform the Collegium Pharmaceutical. In addition to that, Sonoma Pharmaceuticals is 1.08 times more volatile than Collegium Pharmaceutical. It trades about -0.24 of its total potential returns per unit of risk. Collegium Pharmaceutical is currently generating about -0.2 per unit of volatility. If you would invest  3,061  in Collegium Pharmaceutical on October 9, 2024 and sell it today you would lose (199.00) from holding Collegium Pharmaceutical or give up 6.5% of portfolio value over 90 days.

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

Sonoma Pharmaceuticals  vs.  Collegium Pharmaceutical

Sonoma Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Sonoma Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Sonoma Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Collegium Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Sonoma Pharmaceuticals and Collegium Pharmaceutical

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

The idea behind Sonoma Pharmaceuticals and Collegium Pharmaceutical 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.