Correlation Between ESSA Pharma and Eton Pharmaceuticals

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

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

Diversification Opportunities for ESSA Pharma and Eton Pharmaceuticals

-0.79

Correlation Coefficient

ESSA Pharma  Eton Pharmaceuticals

Pay attention - limited upside

The 3 months correlation between ESSA and Eton is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Eton Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eton Pharmaceuticals and ESSA 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 ESSA Pharma are associated (or correlated) with Eton Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eton Pharmaceuticals has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and Eton Pharmaceuticals go up and down completely randomly.

Pair Corralation between ESSA Pharma and Eton Pharmaceuticals

Given the investment horizon of 90 days ESSA Pharma is expected to under-perform the Eton Pharmaceuticals. In addition to that, ESSA Pharma is 2.44 times more volatile than Eton Pharmaceuticals. It trades about -0.08 of its total potential returns per unit of risk. Eton Pharmaceuticals is currently generating about 0.39 per unit of volatility. If you would invest  461.00  in Eton Pharmaceuticals on September 4, 2024 and sell it today you would earn a total of  785.00  from holding Eton Pharmaceuticals or generate 170.28% return on investment over 90 days.

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

ESSA Pharma  vs.  Eton Pharmaceuticals

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward 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.

Eton Pharmaceuticals

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Eton Pharmaceuticals are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eton Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESSA Pharma and Eton Pharmaceuticals

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

The idea behind ESSA Pharma and Eton 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.