Correlation Between Teva Pharma and Axsome Therapeutics

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

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

Diversification Opportunities for Teva Pharma and Axsome Therapeutics

-0.37

Correlation Coefficient

Teva Pharma  Axsome Therapeutics

Very good diversification

The 3 months correlation between Teva and Axsome is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Axsome Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axsome Therapeutics and Teva Pharma 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 Teva Pharma Industries are associated (or correlated) with Axsome Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axsome Therapeutics has no effect on the direction of Teva Pharma i.e., Teva Pharma and Axsome Therapeutics go up and down completely randomly.

Pair Corralation between Teva Pharma and Axsome Therapeutics

Given the investment horizon of 90 days Teva Pharma Industries is expected to generate 0.97 times more return on investment than Axsome Therapeutics. However, Teva Pharma Industries is 1.04 times less risky than Axsome Therapeutics. It trades about 0.08 of its potential returns per unit of risk. Axsome Therapeutics is currently generating about 0.03 per unit of risk. If you would invest  934.00  in Teva Pharma Industries on September 19, 2024 and sell it today you would earn a total of  1,242  from holding Teva Pharma Industries or generate 133.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Teva Pharma Industries  vs.  Axsome Therapeutics

Teva Pharma Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Axsome Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Axsome Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Axsome Therapeutics is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Teva Pharma and Axsome Therapeutics

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

The idea behind Teva Pharma Industries and Axsome Therapeutics 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .