Correlation Between Agios Pharm and China Pharma

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

By analyzing existing cross correlation between Agios Pharm and China Pharma Holdings, you can compare the effects of market volatilities on Agios Pharm and China 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 Agios Pharm with a short position of China Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agios Pharm and China Pharma.

Diversification Opportunities for Agios Pharm and China Pharma

-0.49

Correlation Coefficient

Agios Pharm  China Pharma

Very good diversification

The 3 months correlation between Agios and China is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Agios Pharm and China Pharma Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pharma Holdings and Agios Pharm 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 Agios Pharm are associated (or correlated) with China Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pharma Holdings has no effect on the direction of Agios Pharm i.e., Agios Pharm and China Pharma go up and down completely randomly.

Pair Corralation between Agios Pharm and China Pharma

Given the investment horizon of 90 days Agios Pharm is expected to generate 0.82 times more return on investment than China Pharma. However, Agios Pharm is 1.22 times less risky than China Pharma. It trades about 0.28 of its potential returns per unit of risk. China Pharma Holdings is currently generating about -0.24 per unit of risk. If you would invest  4,683  in Agios Pharm on August 30, 2024 and sell it today you would earn a total of  1,183  from holding Agios Pharm or generate 25.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Agios Pharm  vs.  China Pharma Holdings

Agios Pharm

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Agios Pharm are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Agios Pharm displayed solid returns over the last few months and may actually be approaching a breakup point.

China Pharma Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Pharma Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, China Pharma demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Agios Pharm and China Pharma

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

The idea behind Agios Pharm and China Pharma Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.