Correlation Between Catalyst Pharmaceuticals and Dow

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

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

Diversification Opportunities for Catalyst Pharmaceuticals and Dow

0.5

Correlation Coefficient

Catalyst Pharmaceuticals  Dow

Very weak diversification

The 3 months correlation between Catalyst and Dow is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Catalyst Pharmaceuticals and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Inc and Catalyst Pharmaceuticals 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 Catalyst Pharmaceuticals are associated (or correlated) with Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of Catalyst Pharmaceuticals i.e., Catalyst Pharmaceuticals and Dow go up and down completely randomly.

Pair Corralation between Catalyst Pharmaceuticals and Dow

Given the investment horizon of 90 days Catalyst Pharmaceuticals is expected to generate 2.81 times more return on investment than Dow. However, Catalyst Pharmaceuticals is 2.81 times more volatile than Dow Inc. It trades about 0.12 of its potential returns per unit of risk. Dow Inc is currently generating about 0.07 per unit of risk. If you would invest  1,390  in Catalyst Pharmaceuticals on February 22, 2024 and sell it today you would earn a total of  263.00  from holding Catalyst Pharmaceuticals or generate 18.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Catalyst Pharmaceuticals  vs.  Dow Inc

Catalyst Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Catalyst Pharmaceuticals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Catalyst Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Dow Inc

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Dow is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Catalyst Pharmaceuticals and Dow

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

The idea behind Catalyst Pharmaceuticals and Dow 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..