Correlation Between Teva Pharma and Zoetis

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

Diversification Opportunities for Teva Pharma and Zoetis

0.27

Correlation Coefficient

Teva Pharma  Zoetis

Modest diversification

The 3 months correlation between Teva and Zoetis is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Zoetis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zoetis Inc 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 Zoetis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zoetis Inc has no effect on the direction of Teva Pharma i.e., Teva Pharma and Zoetis go up and down completely randomly.

Pair Corralation between Teva Pharma and Zoetis

Given the investment horizon of 90 days Teva Pharma Industries is expected to under-perform the Zoetis. In addition to that, Teva Pharma is 1.38 times more volatile than Zoetis Inc. It trades about -0.1 of its total potential returns per unit of risk. Zoetis Inc is currently generating about -0.04 per unit of volatility. If you would invest  18,306  in Zoetis Inc on August 30, 2024 and sell it today you would lose (632.00) from holding Zoetis Inc or give up 3.45% of portfolio value over 90 days.

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

Teva Pharma Industries  vs.  Zoetis Inc

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 unfluctuating 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.

Zoetis Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zoetis Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Zoetis is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Teva Pharma and Zoetis

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

The idea behind Teva Pharma Industries and Zoetis Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.