Correlation Between Teva Pharma and Incyte

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

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

Diversification Opportunities for Teva Pharma and Incyte

-0.4

Correlation Coefficient

Teva Pharma  Incyte

Very good diversification

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

Pair Corralation between Teva Pharma and Incyte

Given the investment horizon of 90 days Teva Pharma Industries is expected to under-perform the Incyte. But the stock apears to be less risky and, when comparing its historical volatility, Teva Pharma Industries is 1.41 times less risky than Incyte. The stock trades about -0.09 of its potential returns per unit of risk. The Incyte is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,631  in Incyte on August 31, 2024 and sell it today you would earn a total of  914.00  from holding Incyte or generate 13.78% return on investment over 90 days.

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

Teva Pharma Industries  vs.  Incyte

Teva Pharma Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teva Pharma Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Incyte

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incyte are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Incyte showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharma and Incyte

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

The idea behind Teva Pharma Industries and Incyte 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.