Correlation Between Molina Healthcare and Olema Pharmaceuticals

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

Diversification Opportunities for Molina Healthcare and Olema Pharmaceuticals

0.42
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Molina and Olema is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Molina Healthcare and Olema Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olema Pharmaceuticals and Molina Healthcare 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 Molina Healthcare are associated (or correlated) with Olema Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olema Pharmaceuticals has no effect on the direction of Molina Healthcare i.e., Molina Healthcare and Olema Pharmaceuticals go up and down completely randomly.

Pair Corralation between Molina Healthcare and Olema Pharmaceuticals

Considering the 90-day investment horizon Molina Healthcare is expected to generate 0.31 times more return on investment than Olema Pharmaceuticals. However, Molina Healthcare is 3.23 times less risky than Olema Pharmaceuticals. It trades about -0.11 of its potential returns per unit of risk. Olema Pharmaceuticals is currently generating about -0.16 per unit of risk. If you would invest  35,295  in Molina Healthcare on September 4, 2022 and sell it today you would lose (1,878)  from holding Molina Healthcare or give up 5.32% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Molina Healthcare  vs.  Olema Pharmaceuticals

 Performance (%) 
       Timeline  
Molina Healthcare 
Molina Performance
0 of 100
Over the last 90 days Molina Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Molina Healthcare is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Molina Price Channel

Olema Pharmaceuticals 
Olema Performance
0 of 100
Over the last 90 days Olema Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

Olema Price Channel

Molina Healthcare and Olema Pharmaceuticals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Molina Healthcare and Olema Pharmaceuticals

The main advantage of trading using opposite Molina Healthcare and Olema Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Molina Healthcare position performs unexpectedly, Olema 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 Olema Pharmaceuticals will offset losses from the drop in Olema Pharmaceuticals' long position.
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The idea behind Molina Healthcare and Olema 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.
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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