Correlation Between MediciNova and PharmChem

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Can any of the company-specific risk be diversified away by investing in both MediciNova and PharmChem 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 MediciNova and PharmChem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MediciNova and PharmChem, you can compare the effects of market volatilities on MediciNova and PharmChem 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 MediciNova with a short position of PharmChem. Check out your portfolio center. Please also check ongoing floating volatility patterns of MediciNova and PharmChem.

Diversification Opportunities for MediciNova and PharmChem

-0.43
  Correlation Coefficient

Very good diversification

The 3 months correlation between MediciNova and PharmChem is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding MediciNova and PharmChem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PharmChem and MediciNova 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 MediciNova are associated (or correlated) with PharmChem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PharmChem has no effect on the direction of MediciNova i.e., MediciNova and PharmChem go up and down completely randomly.

Pair Corralation between MediciNova and PharmChem

Given the investment horizon of 90 days MediciNova is expected to generate 4.63 times more return on investment than PharmChem. However, MediciNova is 4.63 times more volatile than PharmChem. It trades about 0.07 of its potential returns per unit of risk. PharmChem is currently generating about -0.2 per unit of risk. If you would invest  199.00  in MediciNova on September 5, 2024 and sell it today you would earn a total of  27.00  from holding MediciNova or generate 13.57% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy97.62%
ValuesDaily Returns

MediciNova  vs.  PharmChem

 Performance 
       Timeline  
MediciNova 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in MediciNova are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, MediciNova showed solid returns over the last few months and may actually be approaching a breakup point.
PharmChem 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, PharmChem is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

MediciNova and PharmChem Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MediciNova and PharmChem

The main advantage of trading using opposite MediciNova and PharmChem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MediciNova position performs unexpectedly, PharmChem 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 PharmChem will offset losses from the drop in PharmChem's long position.
The idea behind MediciNova and PharmChem 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.
Check out your portfolio center.
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.

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