Correlation Between China Pharma and Universe Pharmaceuticals

Can any of the company-specific risk be diversified away by investing in both China Pharma and Universe Pharmaceuticals 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 Universe Pharmaceuticals 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 Universe Pharmaceuticals, you can compare the effects of market volatilities on China Pharma and Universe Pharmaceuticals 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 Universe Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Pharma and Universe Pharmaceuticals.

Diversification Opportunities for China Pharma and Universe Pharmaceuticals

-0.61

Correlation Coefficient

China Pharma  Universe Pharmaceuticals

Excellent diversification

The 3 months correlation between China and Universe is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Pharma Holdings and Universe Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universe Pharmaceuticals 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 Universe Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universe Pharmaceuticals has no effect on the direction of China Pharma i.e., China Pharma and Universe Pharmaceuticals go up and down completely randomly.

Pair Corralation between China Pharma and Universe Pharmaceuticals

Given the investment horizon of 90 days China Pharma Holdings is expected to under-perform the Universe Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, China Pharma Holdings is 1.68 times less risky than Universe Pharmaceuticals. The stock trades about -0.07 of its potential returns per unit of risk. The Universe Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  235.00  in Universe Pharmaceuticals on March 9, 2024 and sell it today you would lose (5.00) from holding Universe Pharmaceuticals or give up 2.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

China Pharma Holdings  vs.  Universe Pharmaceuticals

China Pharma Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Pharma Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Universe Pharmaceuticals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universe Pharmaceuticals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Universe Pharmaceuticals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Pharma and Universe Pharmaceuticals

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

The idea behind China Pharma Holdings and Universe Pharmaceuticals 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.