Correlation Between Apple and EMERGENT BIOSOLUT

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

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

Diversification Opportunities for Apple and EMERGENT BIOSOLUT

0.63

Correlation Coefficient

Apple  EMERGENT BIOSOLUT

Poor diversification

The 3 months correlation between Apple and EMERGENT is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and EMERGENT BIOSOLUT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMERGENT BIOSOLUT and Apple 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 Apple Inc are associated (or correlated) with EMERGENT BIOSOLUT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMERGENT BIOSOLUT has no effect on the direction of Apple i.e., Apple and EMERGENT BIOSOLUT go up and down completely randomly.

Pair Corralation between Apple and EMERGENT BIOSOLUT

Assuming the 90 days trading horizon Apple is expected to generate 2.86 times less return on investment than EMERGENT BIOSOLUT. But when comparing it to its historical volatility, Apple Inc is 5.19 times less risky than EMERGENT BIOSOLUT. It trades about 0.15 of its potential returns per unit of risk. EMERGENT BIOSOLUT is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  769.00  in EMERGENT BIOSOLUT on September 3, 2024 and sell it today you would earn a total of  180.00  from holding EMERGENT BIOSOLUT or generate 23.41% return on investment over 90 days.

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

Apple Inc  vs.  EMERGENT BIOSOLUT

Apple Inc

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in January 2025.

EMERGENT BIOSOLUT

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EMERGENT BIOSOLUT are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, EMERGENT BIOSOLUT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Apple and EMERGENT BIOSOLUT

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

The idea behind Apple Inc and EMERGENT BIOSOLUT 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.