Correlation Between Memphis Pharmaceuticals and Natural Gas

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

By analyzing existing cross correlation between Memphis Pharmaceuticals and Natural Gas Mining, you can compare the effects of market volatilities on Memphis Pharmaceuticals and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Memphis Pharmaceuticals and Natural Gas.

Diversification Opportunities for Memphis Pharmaceuticals and Natural Gas

0.4

Correlation Coefficient

Memphis Pharmaceuticals  Natural Gas

Very weak diversification

The 3 months correlation between Memphis and Natural is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Memphis Pharmaceuticals and Natural Gas Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Mining 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Mining has no effect on the direction of Memphis Pharmaceuticals i.e., Memphis Pharmaceuticals and Natural Gas go up and down completely randomly.

Pair Corralation between Memphis Pharmaceuticals and Natural Gas

Assuming the 90 days trading horizon Memphis Pharmaceuticals is expected to generate 1.38 times more return on investment than Natural Gas. However, Memphis Pharmaceuticals is 1.38 times more volatile than Natural Gas Mining. It trades about 0.13 of its potential returns per unit of risk. Natural Gas Mining is currently generating about 0.05 per unit of risk. If you would invest  3,632  in Memphis Pharmaceuticals on September 25, 2024 and sell it today you would earn a total of  1,593  from holding Memphis Pharmaceuticals or generate 43.86% 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.  Natural Gas Mining

Memphis Pharmaceuticals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Memphis Pharmaceuticals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Memphis Pharmaceuticals reported solid returns over the last few months and may actually be approaching a breakup point.

Natural Gas Mining

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Mining are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Natural Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Memphis Pharmaceuticals and Natural Gas

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

The idea behind Memphis Pharmaceuticals and Natural Gas Mining 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.