Correlation Between Global Health and Paramount Communications

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

By analyzing existing cross correlation between Global Health Limited and Paramount Communications Limited, you can compare the effects of market volatilities on Global Health and Paramount Communications 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 Global Health with a short position of Paramount Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Health and Paramount Communications.

Diversification Opportunities for Global Health and Paramount Communications

0.32

Correlation Coefficient

Global Health  Paramount Communications

Weak diversification

The 3 months correlation between Global and Paramount is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Global Health Limited and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications and Global Health 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 Global Health Limited are associated (or correlated) with Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of Global Health i.e., Global Health and Paramount Communications go up and down completely randomly.

Pair Corralation between Global Health and Paramount Communications

Assuming the 90 days trading horizon Global Health Limited is expected to generate 0.75 times more return on investment than Paramount Communications. However, Global Health Limited is 1.34 times less risky than Paramount Communications. It trades about 0.0 of its potential returns per unit of risk. Paramount Communications Limited is currently generating about -0.14 per unit of risk. If you would invest  115,385  in Global Health Limited on September 4, 2024 and sell it today you would lose (1,525) from holding Global Health Limited or give up 1.32% of portfolio value over 90 days.

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

Global Health Limited  vs.  Paramount Communications Limit

Global Health Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Health Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Global Health is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited 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 somewhat 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.

Pair Trading with Global Health and Paramount Communications

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

The idea behind Global Health Limited and Paramount Communications Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.