Correlation Between Teva Pharmaceutical and Nice
Can any of the company-specific risk be diversified away by investing in both Teva Pharmaceutical and Nice 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 Teva Pharmaceutical and Nice into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Teva Pharmaceutical Industries and Nice, you can compare the effects of market volatilities on Teva Pharmaceutical and Nice 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 Teva Pharmaceutical with a short position of Nice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharmaceutical and Nice.
Diversification Opportunities for Teva Pharmaceutical and Nice
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Teva and Nice is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharmaceutical Industries and Nice in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nice and Teva 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 Teva Pharmaceutical Industries are associated (or correlated) with Nice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nice has no effect on the direction of Teva Pharmaceutical i.e., Teva Pharmaceutical and Nice go up and down completely randomly.
Pair Corralation between Teva Pharmaceutical and Nice
Assuming the 90 days trading horizon Teva Pharmaceutical Industries is expected to generate 1.19 times more return on investment than Nice. However, Teva Pharmaceutical is 1.19 times more volatile than Nice. It trades about 0.2 of its potential returns per unit of risk. Nice is currently generating about -0.19 per unit of risk. If you would invest 479,900 in Teva Pharmaceutical Industries on March 3, 2024 and sell it today you would earn a total of 134,100 from holding Teva Pharmaceutical Industries or generate 27.94% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Teva Pharmaceutical Industries vs. Nice
Performance |
Timeline |
Teva Pharmaceutical |
Nice |
Teva Pharmaceutical and Nice Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Teva Pharmaceutical and Nice
The main advantage of trading using opposite Teva Pharmaceutical and Nice positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teva Pharmaceutical position performs unexpectedly, Nice 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 Nice will offset losses from the drop in Nice's long position.The idea behind Teva Pharmaceutical Industries and Nice 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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