Correlation Between Teva Pharma and Connect Biopharma

Can any of the company-specific risk be diversified away by investing in both Teva Pharma and Connect Biopharma 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 Connect Biopharma 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 Connect Biopharma Holdings, you can compare the effects of market volatilities on Teva Pharma and Connect Biopharma 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 Connect Biopharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharma and Connect Biopharma.

Diversification Opportunities for Teva Pharma and Connect Biopharma

0.46

Correlation Coefficient

Teva Pharma  Connect Biopharma

Very weak diversification

The 3 months correlation between Teva and Connect is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Connect Biopharma Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connect Biopharma 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 Connect Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connect Biopharma has no effect on the direction of Teva Pharma i.e., Teva Pharma and Connect Biopharma go up and down completely randomly.

Pair Corralation between Teva Pharma and Connect Biopharma

Given the investment horizon of 90 days Teva Pharma Industries is expected to under-perform the Connect Biopharma. But the stock apears to be less risky and, when comparing its historical volatility, Teva Pharma Industries is 2.76 times less risky than Connect Biopharma. The stock trades about -0.02 of its potential returns per unit of risk. The Connect Biopharma Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  120.00  in Connect Biopharma Holdings on September 12, 2024 and sell it today you would lose (6.00) from holding Connect Biopharma Holdings or give up 5.0% of portfolio value over 90 days.

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

Teva Pharma Industries  vs.  Connect Biopharma Holdings

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.

Connect Biopharma

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Teva Pharma and Connect Biopharma

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

The idea behind Teva Pharma Industries and Connect Biopharma Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.