Correlation Between Shanghai Fosun and Teva Pharma

Can any of the company-specific risk be diversified away by investing in both Shanghai Fosun and Teva Pharma 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 Shanghai Fosun and Teva Pharma into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Fosun Pharmaceutical and Teva Pharma Industries, you can compare the effects of market volatilities on Shanghai Fosun and Teva Pharma 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 Shanghai Fosun with a short position of Teva Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Fosun and Teva Pharma.

Diversification Opportunities for Shanghai Fosun and Teva Pharma

-0.11

Correlation Coefficient

Shanghai Fosun  Teva Pharma

Good diversification

The 3 months correlation between Shanghai and Teva is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Fosun Pharmaceutical and Teva Pharma Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teva Pharma Industries and Shanghai Fosun 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 Shanghai Fosun Pharmaceutical are associated (or correlated) with Teva Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teva Pharma Industries has no effect on the direction of Shanghai Fosun i.e., Shanghai Fosun and Teva Pharma go up and down completely randomly.

Pair Corralation between Shanghai Fosun and Teva Pharma

Assuming the 90 days horizon Shanghai Fosun Pharmaceutical is expected to under-perform the Teva Pharma. But the pink sheet apears to be less risky and, when comparing its historical volatility, Shanghai Fosun Pharmaceutical is 1.19 times less risky than Teva Pharma. The pink sheet trades about -0.3 of its potential returns per unit of risk. The Teva Pharma Industries is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  1,443  in Teva Pharma Industries on January 27, 2024 and sell it today you would lose (118.00) from holding Teva Pharma Industries or give up 8.18% of portfolio value over 90 days.

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

Shanghai Fosun Pharmaceutical  vs.  Teva Pharma Industries

Shanghai Fosun Pharm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shanghai Fosun Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic 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.

Teva Pharma Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharma Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Teva Pharma may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Shanghai Fosun and Teva Pharma

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

The idea behind Shanghai Fosun Pharmaceutical and Teva Pharma Industries 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.