Correlation Between Collegium Pharmaceutical and Northwest Pipe

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

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

Diversification Opportunities for Collegium Pharmaceutical and Northwest Pipe

-0.82

Correlation Coefficient

Collegium Pharmaceutical  Northwest Pipe

Pay attention - limited upside

The 3 months correlation between Collegium and Northwest is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Collegium Pharmaceutical and Northwest Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Pipe and Collegium 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 Collegium Pharmaceutical are associated (or correlated) with Northwest Pipe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Pipe has no effect on the direction of Collegium Pharmaceutical i.e., Collegium Pharmaceutical and Northwest Pipe go up and down completely randomly.

Pair Corralation between Collegium Pharmaceutical and Northwest Pipe

Given the investment horizon of 90 days Collegium Pharmaceutical is expected to under-perform the Northwest Pipe. But the stock apears to be less risky and, when comparing its historical volatility, Collegium Pharmaceutical is 1.0 times less risky than Northwest Pipe. The stock trades about -0.14 of its potential returns per unit of risk. The Northwest Pipe is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,398  in Northwest Pipe on August 30, 2024 and sell it today you would earn a total of  1,241  from holding Northwest Pipe or generate 28.22% return on investment over 90 days.

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

Collegium Pharmaceutical  vs.  Northwest Pipe

Collegium Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collegium Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Northwest Pipe

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Pipe are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Northwest Pipe showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Collegium Pharmaceutical and Northwest Pipe

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

The idea behind Collegium Pharmaceutical and Northwest Pipe 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.