Correlation Between China Pharma and Catalent

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

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

Diversification Opportunities for China Pharma and Catalent

0.0

Correlation Coefficient

China Pharma  Catalent

Pay attention - limited upside

The 3 months correlation between China and Catalent is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Pharma Holdings and Catalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalent and China 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 China Pharma Holdings are associated (or correlated) with Catalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalent has no effect on the direction of China Pharma i.e., China Pharma and Catalent go up and down completely randomly.

Pair Corralation between China Pharma and Catalent

Given the investment horizon of 90 days China Pharma Holdings is expected to generate 10.92 times more return on investment than Catalent. However, China Pharma is 10.92 times more volatile than Catalent. It trades about 0.03 of its potential returns per unit of risk. Catalent is currently generating about 0.06 per unit of risk. If you would invest  20.00  in China Pharma Holdings on August 28, 2024 and sell it today you would earn a total of  0.00  from holding China Pharma Holdings or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

China Pharma Holdings  vs.  Catalent

China Pharma Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Pharma Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, China Pharma demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Catalent

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with China Pharma and Catalent

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

The idea behind China Pharma Holdings and Catalent 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.