Correlation Between Teva Pharmaceutical and Shanghai Fosun

Can any of the company-specific risk be diversified away by investing in both Teva Pharmaceutical 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 Pharmaceutical 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 Pharmaceutical Industries and Shanghai Fosun Pharmaceutical, you can compare the effects of market volatilities on Teva Pharmaceutical 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 Pharmaceutical with a short position of Shanghai Fosun. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharmaceutical and Shanghai Fosun.

Diversification Opportunities for Teva Pharmaceutical and Shanghai Fosun

-0.59

Correlation Coefficient

Teva Pharmaceutical  Shanghai Fosun

Excellent diversification

The 3 months correlation between Teva and Shanghai is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharmaceutical 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 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 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 Pharmaceutical i.e., Teva Pharmaceutical and Shanghai Fosun go up and down completely randomly.

Pair Corralation between Teva Pharmaceutical and Shanghai Fosun

Assuming the 90 days horizon Teva Pharmaceutical Industries is expected to generate 1.45 times more return on investment than Shanghai Fosun. However, Teva Pharmaceutical is 1.45 times more volatile than Shanghai Fosun Pharmaceutical. It trades about -0.14 of its potential returns per unit of risk. Shanghai Fosun Pharmaceutical is currently generating about -0.3 per unit of risk. If you would invest  1,320  in Teva Pharmaceutical Industries on January 20, 2024 and sell it today you would lose (122.00) from holding Teva Pharmaceutical Industries or give up 9.24% of portfolio value over 90 days.

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

Teva Pharmaceutical Industries  vs.  Shanghai Fosun Pharmaceutical

Teva Pharmaceutical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharmaceutical Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, Teva Pharmaceutical 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 weak 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 Pharmaceutical and Shanghai Fosun

The main advantage of trading using opposite Teva Pharmaceutical and Shanghai Fosun positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teva Pharmaceutical 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 Pharmaceutical 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.