Correlation Between ABL Bio and Prestige Biologics

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

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

Diversification Opportunities for ABL Bio and Prestige Biologics

0.83

Correlation Coefficient

ABL Bio  Prestige Biologics

Very poor diversification

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

Pair Corralation between ABL Bio and Prestige Biologics

Assuming the 90 days trading horizon ABL Bio is expected to generate 0.86 times more return on investment than Prestige Biologics. However, ABL Bio is 1.17 times less risky than Prestige Biologics. It trades about -0.08 of its potential returns per unit of risk. Prestige Biologics Co is currently generating about -0.07 per unit of risk. If you would invest  3,150,000  in ABL Bio on September 19, 2024 and sell it today you would lose (265,000) from holding ABL Bio or give up 8.41% of portfolio value over 90 days.

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

ABL Bio  vs.  Prestige Biologics Co

ABL Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABL Bio has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ABL Bio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prestige Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prestige Biologics Co 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 basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with ABL Bio and Prestige Biologics

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

The idea behind ABL Bio and Prestige Biologics Co 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.