Correlation Between BICO Group and Lifeline Biotechnologies

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

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

Diversification Opportunities for BICO Group and Lifeline Biotechnologies

0.28

Correlation Coefficient

BICO Group  Lifeline Biotechnologies

Modest diversification

The 3 months correlation between BICO and Lifeline is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding BICO Group AB and Lifeline Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeline Biotechnologies and BICO Group 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 BICO Group AB are associated (or correlated) with Lifeline Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeline Biotechnologies has no effect on the direction of BICO Group i.e., BICO Group and Lifeline Biotechnologies go up and down completely randomly.

Pair Corralation between BICO Group and Lifeline Biotechnologies

Assuming the 90 days horizon BICO Group is expected to generate 44.79 times less return on investment than Lifeline Biotechnologies. But when comparing it to its historical volatility, BICO Group AB is 10.62 times less risky than Lifeline Biotechnologies. It trades about 0.05 of its potential returns per unit of risk. Lifeline Biotechnologies is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  0.04  in Lifeline Biotechnologies on October 11, 2024 and sell it today you would lose (0.02) from holding Lifeline Biotechnologies or give up 50.0% of portfolio value over 90 days.

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

BICO Group AB  vs.  Lifeline Biotechnologies

BICO Group AB

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BICO Group AB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, BICO Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Lifeline Biotechnologies

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeline Biotechnologies are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, Lifeline Biotechnologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BICO Group and Lifeline Biotechnologies

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

The idea behind BICO Group AB and Lifeline Biotechnologies 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.

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 the Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.