Correlation Between China Pharma and CV Sciences

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

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

Diversification Opportunities for China Pharma and CV Sciences

0.26

Correlation Coefficient

China Pharma  CV Sciences

Modest diversification

The 3 months correlation between China and CVSI is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding China Pharma Holdings and CV Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CV Sciences and China Pharma 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 China Pharma Holdings are associated (or correlated) with CV Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CV Sciences has no effect on the direction of China Pharma i.e., China Pharma and CV Sciences go up and down completely randomly.

Pair Corralation between China Pharma and CV Sciences

Given the investment horizon of 90 days China Pharma Holdings is expected to under-perform the CV Sciences. But the stock apears to be less risky and, when comparing its historical volatility, China Pharma Holdings is 1.61 times less risky than CV Sciences. The stock trades about -0.08 of its potential returns per unit of risk. The CV Sciences is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3.00  in CV Sciences on September 3, 2024 and sell it today you would earn a total of  1.00  from holding CV Sciences or generate 33.33% return on investment over 90 days.

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

China Pharma Holdings  vs.  CV Sciences

China Pharma Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Pharma Holdings are ranked lower than 3 (%) 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.

CV Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Pharma and CV Sciences

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

The idea behind China Pharma Holdings and CV Sciences 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.