Correlation Between Meta Platforms and Takeda Pharmaceutical

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

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

Diversification Opportunities for Meta Platforms and Takeda Pharmaceutical

-0.06

Correlation Coefficient

Meta Platforms  Takeda Pharmaceutical

Good diversification

The 3 months correlation between Meta and Takeda is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Takeda Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Takeda Pharmaceutical and Meta Platforms 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 Meta Platforms are associated (or correlated) with Takeda Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Takeda Pharmaceutical has no effect on the direction of Meta Platforms i.e., Meta Platforms and Takeda Pharmaceutical go up and down completely randomly.

Pair Corralation between Meta Platforms and Takeda Pharmaceutical

Given the investment horizon of 90 days Meta Platforms is expected to under-perform the Takeda Pharmaceutical. In addition to that, Meta Platforms is 1.47 times more volatile than Takeda Pharmaceutical Co. It trades about -0.15 of its total potential returns per unit of risk. Takeda Pharmaceutical Co is currently generating about -0.16 per unit of volatility. If you would invest  2,791  in Takeda Pharmaceutical Co on January 30, 2024 and sell it today you would lose (185.00) from holding Takeda Pharmaceutical Co or give up 6.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Meta Platforms  vs.  Takeda Pharmaceutical Co

Meta Platforms

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Takeda Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Takeda Pharmaceutical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Meta Platforms and Takeda Pharmaceutical

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

The idea behind Meta Platforms and Takeda Pharmaceutical Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.