Correlation Between Eagle Pharmaceuticals and Arrowhead Pharmaceuticals

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

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

Diversification Opportunities for Eagle Pharmaceuticals and Arrowhead Pharmaceuticals

0.83

Correlation Coefficient

Eagle Pharmaceuticals  Arrowhead Pharmaceuticals

Very poor diversification

The 3 months correlation between Eagle and Arrowhead is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Pharmaceuticals and Arrowhead Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrowhead Pharmaceuticals and Eagle 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 Eagle Pharmaceuticals are associated (or correlated) with Arrowhead Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrowhead Pharmaceuticals has no effect on the direction of Eagle Pharmaceuticals i.e., Eagle Pharmaceuticals and Arrowhead Pharmaceuticals go up and down completely randomly.

Pair Corralation between Eagle Pharmaceuticals and Arrowhead Pharmaceuticals

Given the investment horizon of 90 days Eagle Pharmaceuticals is expected to under-perform the Arrowhead Pharmaceuticals. In addition to that, Eagle Pharmaceuticals is 1.4 times more volatile than Arrowhead Pharmaceuticals. It trades about -0.18 of its total potential returns per unit of risk. Arrowhead Pharmaceuticals is currently generating about 0.02 per unit of volatility. If you would invest  2,516  in Arrowhead Pharmaceuticals on March 7, 2024 and sell it today you would earn a total of  8.00  from holding Arrowhead Pharmaceuticals or generate 0.32% return on investment over 90 days.

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

Eagle Pharmaceuticals  vs.  Arrowhead Pharmaceuticals

Eagle Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Arrowhead Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arrowhead Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Eagle Pharmaceuticals and Arrowhead Pharmaceuticals

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

The idea behind Eagle Pharmaceuticals and Arrowhead 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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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.