Correlation Between Memphis Pharmaceuticals and Edita Food

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

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

Diversification Opportunities for Memphis Pharmaceuticals and Edita Food

0.5

Correlation Coefficient

Memphis Pharmaceuticals  Edita Food

Very weak diversification

The 3 months correlation between Memphis and Edita is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Memphis Pharmaceuticals and Edita Food Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edita Food Industries and Memphis 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 Memphis Pharmaceuticals are associated (or correlated) with Edita Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edita Food Industries has no effect on the direction of Memphis Pharmaceuticals i.e., Memphis Pharmaceuticals and Edita Food go up and down completely randomly.

Pair Corralation between Memphis Pharmaceuticals and Edita Food

Assuming the 90 days trading horizon Memphis Pharmaceuticals is expected to generate 2.48 times more return on investment than Edita Food. However, Memphis Pharmaceuticals is 2.48 times more volatile than Edita Food Industries. It trades about 0.12 of its potential returns per unit of risk. Edita Food Industries is currently generating about 0.0 per unit of risk. If you would invest  3,798  in Memphis Pharmaceuticals on September 26, 2024 and sell it today you would earn a total of  1,400  from holding Memphis Pharmaceuticals or generate 36.86% return on investment over 90 days.

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

Memphis Pharmaceuticals  vs.  Edita Food Industries

Memphis Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Memphis Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Memphis Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Edita Food Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edita Food Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Edita Food is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Memphis Pharmaceuticals and Edita Food

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

The idea behind Memphis Pharmaceuticals and Edita Food Industries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.