Can any of the company-specific risk be diversified away by investing in both Fevertree Drinks and YS Biopharma 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 Fevertree Drinks and YS Biopharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fevertree Drinks Plc and YS Biopharma Co, you can compare the effects of market volatilities on Fevertree Drinks and YS Biopharma 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 Fevertree Drinks with a short position of YS Biopharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and YS Biopharma.
Diversification Opportunities for Fevertree Drinks and YS Biopharma
The 3 months correlation between Fevertree and YS Biopharma is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and YS Biopharma Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YS Biopharma and Fevertree Drinks 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 Fevertree Drinks Plc are associated (or correlated) with YS Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YS Biopharma has no effect on the direction of Fevertree Drinks i.e., Fevertree Drinks and YS Biopharma go up and down completely randomly.
Pair Corralation between Fevertree Drinks and YS Biopharma
Assuming the 90 days horizon Fevertree Drinks is expected to generate 6.8 times less return on investment than YS Biopharma. But when comparing it to its historical volatility, Fevertree Drinks Plc is 1.79 times less risky than YS Biopharma. It trades about 0.02 of its potential returns per unit of risk. YS Biopharma Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 52.00 in YS Biopharma Co on September 7, 2023 and sell it today you would earn a total of 2.00 from holding YS Biopharma Co or generate 3.85% return on investment over 90 days.
Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Over the last 90 days YS Biopharma Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Fevertree Drinks and YS Biopharma Volatility Contrast
Predicted Return Density
Pair Trading with Fevertree Drinks and YS Biopharma
The main advantage of trading using opposite Fevertree Drinks and YS Biopharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fevertree Drinks position performs unexpectedly, YS Biopharma 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 YS Biopharma will offset losses from the drop in YS Biopharma's long position.
The idea behind Fevertree Drinks Plc and YS Biopharma 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.
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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