Correlation Between Givaudan and Inmed Pharmaceuticals

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Can any of the company-specific risk be diversified away by investing in both Givaudan and Inmed Pharmaceuticals 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 Givaudan and Inmed Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Givaudan Ag Duebendo and Inmed Pharmaceuticals, you can compare the effects of market volatilities on Givaudan and Inmed Pharmaceuticals 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 Givaudan with a short position of Inmed Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Givaudan and Inmed Pharmaceuticals.

Diversification Opportunities for Givaudan and Inmed Pharmaceuticals

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between Givaudan and Inmed is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Givaudan Ag Duebendo and Inmed Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inmed Pharmaceuticals and Givaudan 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 Givaudan Ag Duebendo are associated (or correlated) with Inmed Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inmed Pharmaceuticals has no effect on the direction of Givaudan i.e., Givaudan and Inmed Pharmaceuticals go up and down completely randomly.

Pair Corralation between Givaudan and Inmed Pharmaceuticals

Assuming the 90 days horizon Givaudan Ag Duebendo is expected to generate 0.24 times more return on investment than Inmed Pharmaceuticals. However, Givaudan Ag Duebendo is 4.19 times less risky than Inmed Pharmaceuticals. It trades about 0.24 of its potential returns per unit of risk. Inmed Pharmaceuticals is currently generating about 0.03 per unit of risk. If you would invest  291,400  in Givaudan Ag Duebendo on August 30, 2022 and sell it today you would earn a total of  38,600  from holding Givaudan Ag Duebendo or generate 13.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Givaudan Ag Duebendo  vs.  Inmed Pharmaceuticals

 Performance (%) 
       Timeline  
Givaudan Ag Duebendo 
Givaudan Performance
0 of 100
Over the last 90 days Givaudan Ag Duebendo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Givaudan is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Givaudan Price Channel

Inmed Pharmaceuticals 
Inmed Performance
0 of 100
Over the last 90 days Inmed Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively steady which may send shares a bit higher in December 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Givaudan and Inmed Pharmaceuticals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Givaudan and Inmed Pharmaceuticals

The main advantage of trading using opposite Givaudan and Inmed Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Givaudan position performs unexpectedly, Inmed Pharmaceuticals 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 Inmed Pharmaceuticals will offset losses from the drop in Inmed Pharmaceuticals' long position.
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The idea behind Givaudan Ag Duebendo and Inmed Pharmaceuticals 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Inmed Pharmaceuticals as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Inmed Pharmaceuticals' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Inmed Pharmaceuticals' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Inmed Pharmaceuticals.
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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