Correlation Between Phoenix Materials and InnoTherapy

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

By analyzing existing cross correlation between Phoenix Materials Co and InnoTherapy, you can compare the effects of market volatilities on Phoenix Materials and InnoTherapy 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 Phoenix Materials with a short position of InnoTherapy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phoenix Materials and InnoTherapy.

Diversification Opportunities for Phoenix Materials and InnoTherapy

0.68

Correlation Coefficient

Phoenix Materials  InnoTherapy

Poor diversification

The 3 months correlation between Phoenix and InnoTherapy is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Phoenix Materials Co and InnoTherapy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InnoTherapy and Phoenix Materials 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 Phoenix Materials Co are associated (or correlated) with InnoTherapy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InnoTherapy has no effect on the direction of Phoenix Materials i.e., Phoenix Materials and InnoTherapy go up and down completely randomly.

Pair Corralation between Phoenix Materials and InnoTherapy

Assuming the 90 days trading horizon Phoenix Materials Co is expected to under-perform the InnoTherapy. In addition to that, Phoenix Materials is 1.98 times more volatile than InnoTherapy. It trades about -0.08 of its total potential returns per unit of risk. InnoTherapy is currently generating about -0.09 per unit of volatility. If you would invest  906,000  in InnoTherapy on September 13, 2024 and sell it today you would lose (73,000) from holding InnoTherapy or give up 8.06% of portfolio value over 90 days.

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

Phoenix Materials Co  vs.  InnoTherapy

Phoenix Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phoenix Materials Co 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 somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

InnoTherapy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InnoTherapy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Phoenix Materials and InnoTherapy

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

The idea behind Phoenix Materials Co and InnoTherapy 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.