Correlation Between Silver Spike and Kala Pharmaceuticals

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

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

Diversification Opportunities for Silver Spike and Kala Pharmaceuticals

0.3

Correlation Coefficient

Silver Spike  Kala Pharmaceuticals

Weak diversification

The 3 months correlation between Silver and Kala is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Silver Spike Investment and Kala Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kala Pharmaceuticals and Silver Spike 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 Silver Spike Investment are associated (or correlated) with Kala Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kala Pharmaceuticals has no effect on the direction of Silver Spike i.e., Silver Spike and Kala Pharmaceuticals go up and down completely randomly.

Pair Corralation between Silver Spike and Kala Pharmaceuticals

Given the investment horizon of 90 days Silver Spike is expected to generate 1.05 times less return on investment than Kala Pharmaceuticals. But when comparing it to its historical volatility, Silver Spike Investment is 2.19 times less risky than Kala Pharmaceuticals. It trades about 0.16 of its potential returns per unit of risk. Kala Pharmaceuticals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  589.00  in Kala Pharmaceuticals on September 3, 2024 and sell it today you would earn a total of  83.00  from holding Kala Pharmaceuticals or generate 14.09% return on investment over 90 days.

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

Silver Spike Investment  vs.  Kala Pharmaceuticals

Silver Spike Investment

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Silver Spike Investment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Silver Spike exhibited solid returns over the last few months and may actually be approaching a breakup point.

Kala Pharmaceuticals

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Silver Spike and Kala Pharmaceuticals

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

The idea behind Silver Spike Investment and Kala 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.