Correlation Between Vulcan Materials and Takeda Pharmaceutical

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

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

Diversification Opportunities for Vulcan Materials and Takeda Pharmaceutical

-0.27

Correlation Coefficient

Vulcan Materials  Takeda Pharmaceutical

Very good diversification

The 3 months correlation between Vulcan and Takeda is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Takeda Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Takeda Pharmaceutical and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and Takeda Pharmaceutical go up and down completely randomly.

Pair Corralation between Vulcan Materials and Takeda Pharmaceutical

Assuming the 90 days horizon Vulcan Materials is expected to under-perform the Takeda Pharmaceutical. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials is 1.27 times less risky than Takeda Pharmaceutical. The stock trades about -0.15 of its potential returns per unit of risk. The Takeda Pharmaceutical is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,260  in Takeda Pharmaceutical on September 13, 2024 and sell it today you would earn a total of  0.00  from holding Takeda Pharmaceutical or generate 0.0% return on investment over 90 days.

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

Vulcan Materials  vs.  Takeda Pharmaceutical

Vulcan Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Materials 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 fundamental 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 Vulcan Materials and Takeda Pharmaceutical

The main advantage of trading using opposite Vulcan Materials and Takeda Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.