Correlation Between Zoetis and Collegium Pharmaceutical

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

By analyzing existing cross correlation between Zoetis Inc and Collegium Pharmaceutical, you can compare the effects of market volatilities on Zoetis and Collegium Pharmaceutical 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 Zoetis with a short position of Collegium Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zoetis and Collegium Pharmaceutical.

Diversification Opportunities for Zoetis and Collegium Pharmaceutical

0.88

Correlation Coefficient

Zoetis  Collegium Pharmaceutical

Very poor diversification

The 3 months correlation between Zoetis and Collegium is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Zoetis Inc and Collegium Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Collegium Pharmaceutical and Zoetis 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 Zoetis Inc are associated (or correlated) with Collegium Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Collegium Pharmaceutical has no effect on the direction of Zoetis i.e., Zoetis and Collegium Pharmaceutical go up and down completely randomly.

Pair Corralation between Zoetis and Collegium Pharmaceutical

Considering the 90-day investment horizon Zoetis is expected to generate 4.14 times less return on investment than Collegium Pharmaceutical. But when comparing it to its historical volatility, Zoetis Inc is 1.57 times less risky than Collegium Pharmaceutical. It trades about 0.02 of its potential returns per unit of risk. Collegium Pharmaceutical is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,116  in Collegium Pharmaceutical on September 21, 2024 and sell it today you would earn a total of  854.00  from holding Collegium Pharmaceutical or generate 40.36% return on investment over 90 days.

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

Zoetis Inc  vs.  Collegium Pharmaceutical

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Collegium Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Zoetis and Collegium Pharmaceutical

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

The idea behind Zoetis Inc and Collegium Pharmaceutical 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.