Correlation Between Teva Pharma and American Green

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

Diversification Opportunities for Teva Pharma and American Green

0.11

Correlation Coefficient

Teva Pharma  American Green

Average diversification

The 3 months correlation between Teva and American is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and American Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Green 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 American Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Green has no effect on the direction of Teva Pharma i.e., Teva Pharma and American Green go up and down completely randomly.

Pair Corralation between Teva Pharma and American Green

Given the investment horizon of 90 days Teva Pharma Industries is expected to under-perform the American Green. But the stock apears to be less risky and, when comparing its historical volatility, Teva Pharma Industries is 5.44 times less risky than American Green. The stock trades about -0.22 of its potential returns per unit of risk. The American Green is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.05  in American Green on December 2, 2024 and sell it today you would lose (0.01) from holding American Green or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.56%
Values	Daily Returns

Teva Pharma Industries  vs.  American Green

Teva Pharma Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharma Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

American Green

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Green are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental drivers, American Green sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharma and American Green

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

The idea behind Teva Pharma Industries and American Green 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.