Correlation Between Teva Pharma and Pharmadrug

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

Diversification Opportunities for Teva Pharma and Pharmadrug

0.61

Correlation Coefficient

Teva Pharma  Pharmadrug

Poor diversification

The 3 months correlation between Teva and Pharmadrug is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Pharmadrug in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharmadrug 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 Pharmadrug. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharmadrug has no effect on the direction of Teva Pharma i.e., Teva Pharma and Pharmadrug go up and down completely randomly.

Pair Corralation between Teva Pharma and Pharmadrug

Given the investment horizon of 90 days Teva Pharma is expected to generate 3.98 times less return on investment than Pharmadrug. But when comparing it to its historical volatility, Teva Pharma Industries is 8.85 times less risky than Pharmadrug. It trades about 0.13 of its potential returns per unit of risk. Pharmadrug is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.25  in Pharmadrug on September 4, 2024 and sell it today you would lose (2.23) from holding Pharmadrug or give up 68.62% of portfolio value over 90 days.

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

Teva Pharma Industries  vs.  Pharmadrug

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pharmadrug

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pharmadrug are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Pharmadrug reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharma and Pharmadrug

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

The idea behind Teva Pharma Industries and Pharmadrug 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.