Correlation Between Teva Pharmaceutical and Target
Can any of the company-specific risk be diversified away by investing in both Teva Pharmaceutical and Target 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 Target 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 Target, you can compare the effects of market volatilities on Teva Pharmaceutical and Target 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 Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharmaceutical and Target.
Diversification Opportunities for Teva Pharmaceutical and Target
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Teva and Target is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharmaceutical Industries and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Teva Pharmaceutical i.e., Teva Pharmaceutical and Target go up and down completely randomly.
Pair Corralation between Teva Pharmaceutical and Target
Assuming the 90 days trading horizon Teva Pharmaceutical Industries is expected to generate 1.18 times more return on investment than Target. However, Teva Pharmaceutical is 1.18 times more volatile than Target. It trades about 0.07 of its potential returns per unit of risk. Target is currently generating about -0.01 per unit of risk. If you would invest 255,500 in Teva Pharmaceutical Industries on January 24, 2024 and sell it today you would earn a total of 242,300 from holding Teva Pharmaceutical Industries or generate 94.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 78.95% |
| Values | Daily Returns |
Teva Pharmaceutical Industries vs. Target
Performance |
| Timeline |
| Teva Pharmaceutical |
| Target |
Teva Pharmaceutical and Target Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Teva Pharmaceutical and Target
The main advantage of trading using opposite Teva Pharmaceutical and Target positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teva Pharmaceutical position performs unexpectedly, Target 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 Target will offset losses from the drop in Target's long position.The idea behind Teva Pharmaceutical Industries and Target 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.| Target vs. Big Lots | Target vs. Aquagold International | Target vs. Thrivent High Yield | Target vs. Morningstar Unconstrained Allocation |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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