Correlation Between Eagle Pharmaceuticals and China Pharma

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

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

Diversification Opportunities for Eagle Pharmaceuticals and China Pharma

0.25

Correlation Coefficient

Eagle Pharmaceuticals  China Pharma

Modest diversification

The 3 months correlation between Eagle and China is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Pharmaceuticals 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 Eagle Pharmaceuticals 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 Eagle Pharmaceuticals 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 Eagle Pharmaceuticals i.e., Eagle Pharmaceuticals and China Pharma go up and down completely randomly.

Pair Corralation between Eagle Pharmaceuticals and China Pharma

Given the investment horizon of 90 days Eagle Pharmaceuticals is expected to under-perform the China Pharma. In addition to that, Eagle Pharmaceuticals is 1.74 times more volatile than China Pharma Holdings. It trades about -0.29 of its total potential returns per unit of risk. China Pharma Holdings is currently generating about -0.01 per unit of volatility. If you would invest  23.00  in China Pharma Holdings on September 12, 2024 and sell it today you would lose (3.04) from holding China Pharma Holdings or give up 13.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	26.56%
Values	Daily Returns

Eagle Pharmaceuticals  vs.  China Pharma Holdings

Eagle Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle 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 fairly 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.

China Pharma Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Eagle Pharmaceuticals and China Pharma

The main advantage of trading using opposite Eagle Pharmaceuticals and China Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle Pharmaceuticals 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 Eagle Pharmaceuticals 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.