Correlation Between Retail Opportunity and PharmChem

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

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

Diversification Opportunities for Retail Opportunity and PharmChem

-0.79

Correlation Coefficient

Retail Opportunity  PharmChem

Pay attention - limited upside

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

Pair Corralation between Retail Opportunity and PharmChem

Given the investment horizon of 90 days Retail Opportunity Investments is expected to generate 0.31 times more return on investment than PharmChem. However, Retail Opportunity Investments is 3.27 times less risky than PharmChem. It trades about 0.19 of its potential returns per unit of risk. PharmChem is currently generating about -0.21 per unit of risk. If you would invest  1,725  in Retail Opportunity Investments on September 24, 2024 and sell it today you would earn a total of  8.00  from holding Retail Opportunity Investments or generate 0.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Retail Opportunity Investments  vs.  PharmChem

Retail Opportunity

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Opportunity Investments are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Retail Opportunity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PharmChem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Retail Opportunity and PharmChem

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

The idea behind Retail Opportunity Investments and PharmChem 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.