Correlation Between Sonoma Pharmaceuticals and Universe Pharmaceuticals

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

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

Diversification Opportunities for Sonoma Pharmaceuticals and Universe Pharmaceuticals

0.16

Correlation Coefficient

Sonoma Pharmaceuticals  Universe Pharmaceuticals

Average diversification

The 3 months correlation between Sonoma and Universe is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Sonoma Pharmaceuticals and Universe Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universe Pharmaceuticals 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 Universe Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universe Pharmaceuticals has no effect on the direction of Sonoma Pharmaceuticals i.e., Sonoma Pharmaceuticals and Universe Pharmaceuticals go up and down completely randomly.

Pair Corralation between Sonoma Pharmaceuticals and Universe Pharmaceuticals

Given the investment horizon of 90 days Sonoma Pharmaceuticals is expected to generate 1.03 times more return on investment than Universe Pharmaceuticals. However, Sonoma Pharmaceuticals is 1.03 times more volatile than Universe Pharmaceuticals. It trades about 0.01 of its potential returns per unit of risk. Universe Pharmaceuticals is currently generating about -0.49 per unit of risk. If you would invest  275.00  in Sonoma Pharmaceuticals on September 4, 2024 and sell it today you would lose (8.00) from holding Sonoma Pharmaceuticals or give up 2.91% of portfolio value over 90 days.

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

Sonoma Pharmaceuticals  vs.  Universe Pharmaceuticals

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

Universe Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universe Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Sonoma Pharmaceuticals and Universe Pharmaceuticals

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

The idea behind Sonoma Pharmaceuticals and Universe Pharmaceuticals 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.