Correlation Between Amphastar and Ironwood Pharmaceuticals

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

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

Diversification Opportunities for Amphastar and Ironwood Pharmaceuticals

0.6

Correlation Coefficient

Amphastar  Ironwood Pharmaceuticals

Poor diversification

The 3 months correlation between Amphastar and Ironwood is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Amphastar P and Ironwood Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ironwood Pharmaceuticals and Amphastar 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 Amphastar P are associated (or correlated) with Ironwood Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ironwood Pharmaceuticals has no effect on the direction of Amphastar i.e., Amphastar and Ironwood Pharmaceuticals go up and down completely randomly.

Pair Corralation between Amphastar and Ironwood Pharmaceuticals

Given the investment horizon of 90 days Amphastar P is expected to generate 0.55 times more return on investment than Ironwood Pharmaceuticals. However, Amphastar P is 1.83 times less risky than Ironwood Pharmaceuticals. It trades about -0.03 of its potential returns per unit of risk. Ironwood Pharmaceuticals is currently generating about -0.05 per unit of risk. If you would invest  4,652  in Amphastar P on September 12, 2024 and sell it today you would lose (288.00) from holding Amphastar P or give up 6.19% of portfolio value over 90 days.

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

Amphastar P  vs.  Ironwood Pharmaceuticals

Amphastar P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amphastar P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Amphastar is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Ironwood Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ironwood Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Amphastar and Ironwood Pharmaceuticals

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

The idea behind Amphastar P and Ironwood Pharmaceuticals 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.