Correlation Between Opthea and Defence Therapeutics

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

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

Diversification Opportunities for Opthea and Defence Therapeutics

-0.18

Correlation Coefficient

Opthea  Defence Therapeutics

Good diversification

The 3 months correlation between Opthea and Defence is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Opthea and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics and Opthea 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 Opthea are associated (or correlated) with Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of Opthea i.e., Opthea and Defence Therapeutics go up and down completely randomly.

Pair Corralation between Opthea and Defence Therapeutics

Considering the 90-day investment horizon Opthea is expected to under-perform the Defence Therapeutics. In addition to that, Opthea is 8.01 times more volatile than Defence Therapeutics. It trades about -0.18 of its total potential returns per unit of risk. Defence Therapeutics is currently generating about 0.21 per unit of volatility. If you would invest  40.00  in Defence Therapeutics on September 12, 2024 and sell it today you would earn a total of  1.00  from holding Defence Therapeutics or generate 2.5% return on investment over 90 days.

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

Opthea  vs.  Defence Therapeutics

Opthea

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Opthea are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Opthea unveiled solid returns over the last few months and may actually be approaching a breakup point.

Defence Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Defence Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Opthea and Defence Therapeutics

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

The idea behind Opthea and Defence Therapeutics 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..