Correlation Between Takeda Pharmaceutical and SAB Biotherapeutics

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

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

Diversification Opportunities for Takeda Pharmaceutical and SAB Biotherapeutics

-0.68

Correlation Coefficient

Takeda Pharmaceutical  SAB Biotherapeutics

Excellent diversification

The 3 months correlation between Takeda and SAB is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Takeda Pharmaceutical Co and SAB Biotherapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAB Biotherapeutics and Takeda Pharmaceutical 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 Takeda Pharmaceutical Co are associated (or correlated) with SAB Biotherapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAB Biotherapeutics has no effect on the direction of Takeda Pharmaceutical i.e., Takeda Pharmaceutical and SAB Biotherapeutics go up and down completely randomly.

Pair Corralation between Takeda Pharmaceutical and SAB Biotherapeutics

Considering the 90-day investment horizon Takeda Pharmaceutical is expected to generate 2.84 times less return on investment than SAB Biotherapeutics. But when comparing it to its historical volatility, Takeda Pharmaceutical Co is 18.88 times less risky than SAB Biotherapeutics. It trades about 0.2 of its potential returns per unit of risk. SAB Biotherapeutics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7.74  in SAB Biotherapeutics on December 28, 2024 and sell it today you would lose (4.75) from holding SAB Biotherapeutics or give up 61.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.0%
Values	Daily Returns

Takeda Pharmaceutical Co  vs.  SAB Biotherapeutics

Takeda Pharmaceutical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Takeda Pharmaceutical Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Takeda Pharmaceutical disclosed solid returns over the last few months and may actually be approaching a breakup point.

SAB Biotherapeutics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SAB Biotherapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, SAB Biotherapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Takeda Pharmaceutical and SAB Biotherapeutics

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

The idea behind Takeda Pharmaceutical Co and SAB Biotherapeutics 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.