Correlation Between Teva Pharma and Shanghai Fosun

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

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

Diversification Opportunities for Teva Pharma and Shanghai Fosun

-0.39

Correlation Coefficient

Teva Pharma  Shanghai Fosun

Very good diversification

The 3 months correlation between Teva and Shanghai is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Shanghai Fosun Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Fosun Pharm and Teva 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 Teva Pharma Industries are associated (or correlated) with Shanghai Fosun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Fosun Pharm has no effect on the direction of Teva Pharma i.e., Teva Pharma and Shanghai Fosun go up and down completely randomly.

Pair Corralation between Teva Pharma and Shanghai Fosun

Given the investment horizon of 90 days Teva Pharma Industries is expected to generate 0.64 times more return on investment than Shanghai Fosun. However, Teva Pharma Industries is 1.57 times less risky than Shanghai Fosun. It trades about -0.03 of its potential returns per unit of risk. Shanghai Fosun Pharmaceutical is currently generating about -0.22 per unit of risk. If you would invest  1,329  in Teva Pharma Industries on January 25, 2024 and sell it today you would lose (28.00) from holding Teva Pharma Industries or give up 2.11% of portfolio value over 90 days.

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

Teva Pharma Industries  vs.  Shanghai Fosun Pharmaceutical

Teva Pharma Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharma Industries are ranked lower than 7 (%) 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.

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.

Pair Trading with Teva Pharma and Shanghai Fosun

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

The idea behind Teva Pharma Industries and Shanghai Fosun Pharmaceutical 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 CEOs Directory module to screen CEOs from public companies around the world.