Correlation Between Takeda Pharmaceutical and China Medical

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

By analyzing existing cross correlation between Takeda Pharmaceutical and China Medical System, you can compare the effects of market volatilities on Takeda Pharmaceutical and China Medical 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 China Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Takeda Pharmaceutical and China Medical.

Diversification Opportunities for Takeda Pharmaceutical and China Medical

0.75

Correlation Coefficient

Takeda Pharmaceutical  China Medical

Poor diversification

The 3 months correlation between Takeda and China is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Takeda Pharmaceutical and China Medical System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Medical System 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 are associated (or correlated) with China Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Medical System has no effect on the direction of Takeda Pharmaceutical i.e., Takeda Pharmaceutical and China Medical go up and down completely randomly.

Pair Corralation between Takeda Pharmaceutical and China Medical

Assuming the 90 days horizon Takeda Pharmaceutical is expected to generate 1.18 times less return on investment than China Medical. But when comparing it to its historical volatility, Takeda Pharmaceutical is 1.68 times less risky than China Medical. It trades about 0.12 of its potential returns per unit of risk. China Medical System is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  89.00  in China Medical System on December 21, 2024 and sell it today you would earn a total of  9.00  from holding China Medical System or generate 10.11% return on investment over 90 days.

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

Takeda Pharmaceutical  vs.  China Medical System

Takeda Pharmaceutical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Takeda Pharmaceutical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Takeda Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Medical System

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Medical System are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, China Medical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Takeda Pharmaceutical and China Medical

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

The idea behind Takeda Pharmaceutical and China Medical System 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..