Correlation Between Teva Pharmaceutical and Takeda Pharmaceutical

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

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

Diversification Opportunities for Teva Pharmaceutical and Takeda Pharmaceutical

-0.4

Correlation Coefficient

Teva Pharmaceutical  Takeda Pharmaceutical

Very good diversification

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

Pair Corralation between Teva Pharmaceutical and Takeda Pharmaceutical

Assuming the 90 days horizon Teva Pharmaceutical Industries is expected to generate 3.33 times more return on investment than Takeda Pharmaceutical. However, Teva Pharmaceutical is 3.33 times more volatile than Takeda Pharmaceutical. It trades about 0.14 of its potential returns per unit of risk. Takeda Pharmaceutical is currently generating about -0.08 per unit of risk. If you would invest  1,565  in Teva Pharmaceutical Industries on September 23, 2024 and sell it today you would earn a total of  555.00  from holding Teva Pharmaceutical Industries or generate 35.46% return on investment over 90 days.

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

Teva Pharmaceutical Industries  vs.  Takeda Pharmaceutical

Teva Pharmaceutical

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharmaceutical Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Teva Pharmaceutical reported solid returns over the last few months and may actually be approaching a breakup point.

Takeda Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Teva Pharmaceutical and Takeda Pharmaceutical

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

The idea behind Teva Pharmaceutical Industries and Takeda Pharmaceutical 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.