Correlation Between Teva Pharma and Verona Pharma

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

Diversification Opportunities for Teva Pharma and Verona Pharma

-0.1

Correlation Coefficient

Teva Pharma  Verona Pharma

Good diversification

The 3 months correlation between Teva and Verona is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Verona Pharma PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verona Pharma PLC 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 Verona Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verona Pharma PLC has no effect on the direction of Teva Pharma i.e., Teva Pharma and Verona Pharma go up and down completely randomly.

Pair Corralation between Teva Pharma and Verona Pharma

Given the investment horizon of 90 days Teva Pharma is expected to generate 1.62 times less return on investment than Verona Pharma. In addition to that, Teva Pharma is 1.33 times more volatile than Verona Pharma PLC. It trades about 0.09 of its total potential returns per unit of risk. Verona Pharma PLC is currently generating about 0.2 per unit of volatility. If you would invest  2,960  in Verona Pharma PLC on September 21, 2024 and sell it today you would earn a total of  1,162  from holding Verona Pharma PLC or generate 39.26% return on investment over 90 days.

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

Teva Pharma Industries  vs.  Verona Pharma PLC

Teva Pharma Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Teva Pharma Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Teva Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Verona Pharma PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Teva Pharma and Verona Pharma

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

The idea behind Teva Pharma Industries and Verona Pharma PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.