Correlation Between Teva Pharmaceutical and Ilex Medical

Can any of the company-specific risk be diversified away by investing in both Teva Pharmaceutical and Ilex Medical 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 Ilex Medical 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 Ilex Medical, you can compare the effects of market volatilities on Teva Pharmaceutical and Ilex Medical 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 Ilex Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharmaceutical and Ilex Medical.

Diversification Opportunities for Teva Pharmaceutical and Ilex Medical

-0.08

Correlation Coefficient

Teva Pharmaceutical  Ilex Medical

Good diversification

The 3 months correlation between Teva and Ilex is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharmaceutical Industries and Ilex Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ilex Medical 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 Ilex Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ilex Medical has no effect on the direction of Teva Pharmaceutical i.e., Teva Pharmaceutical and Ilex Medical go up and down completely randomly.

Pair Corralation between Teva Pharmaceutical and Ilex Medical

Assuming the 90 days trading horizon Teva Pharmaceutical Industries is expected to generate 1.31 times more return on investment than Ilex Medical. However, Teva Pharmaceutical is 1.31 times more volatile than Ilex Medical. It trades about 0.13 of its potential returns per unit of risk. Ilex Medical is currently generating about 0.06 per unit of risk. If you would invest  618,800  in Teva Pharmaceutical Industries on September 28, 2024 and sell it today you would earn a total of  203,400  from holding Teva Pharmaceutical Industries or generate 32.87% return on investment over 90 days.

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

Teva Pharmaceutical Industries  vs.  Ilex Medical

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 somewhat weak basic indicators, Teva Pharmaceutical sustained solid returns over the last few months and may actually be approaching a breakup point.

Ilex Medical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ilex Medical are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ilex Medical sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharmaceutical and Ilex Medical

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

The idea behind Teva Pharmaceutical Industries and Ilex Medical 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.