Correlation Between Sonoma Pharmaceuticals and Durect

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

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

Diversification Opportunities for Sonoma Pharmaceuticals and Durect

0.39

Correlation Coefficient

Sonoma Pharmaceuticals  Durect

Weak diversification

The 3 months correlation between Sonoma and Durect is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Sonoma Pharmaceuticals and Durect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Durect 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 Durect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Durect has no effect on the direction of Sonoma Pharmaceuticals i.e., Sonoma Pharmaceuticals and Durect go up and down completely randomly.

Pair Corralation between Sonoma Pharmaceuticals and Durect

Given the investment horizon of 90 days Sonoma Pharmaceuticals is expected to generate 1.52 times more return on investment than Durect. However, Sonoma Pharmaceuticals is 1.52 times more volatile than Durect. It trades about 0.01 of its potential returns per unit of risk. Durect is currently generating about -0.2 per unit of risk. If you would invest  317.00  in Sonoma Pharmaceuticals on September 12, 2024 and sell it today you would lose (30.00) from holding Sonoma Pharmaceuticals or give up 9.46% of portfolio value over 90 days.

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

Sonoma Pharmaceuticals  vs.  Durect

Sonoma Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Durect

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Durect has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Sonoma Pharmaceuticals and Durect

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

The idea behind Sonoma Pharmaceuticals and Durect 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 Valuation module to check real value of public entities based on technical and fundamental data.