Correlation Between Beam Therapeutics and Passage Bio

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

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

Diversification Opportunities for Beam Therapeutics and Passage Bio

0.41

Correlation Coefficient

Beam Therapeutics  Passage Bio

Very weak diversification

The 3 months correlation between Beam and Passage is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Beam Therapeutics and Passage Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Passage Bio and Beam Therapeutics 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 Beam Therapeutics are associated (or correlated) with Passage Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Passage Bio has no effect on the direction of Beam Therapeutics i.e., Beam Therapeutics and Passage Bio go up and down completely randomly.

Pair Corralation between Beam Therapeutics and Passage Bio

Given the investment horizon of 90 days Beam Therapeutics is expected to generate 12.27 times less return on investment than Passage Bio. But when comparing it to its historical volatility, Beam Therapeutics is 2.59 times less risky than Passage Bio. It trades about 0.02 of its potential returns per unit of risk. Passage Bio is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  71.00  in Passage Bio on October 6, 2024 and sell it today you would earn a total of  12.00  from holding Passage Bio or generate 16.9% return on investment over 90 days.

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

Beam Therapeutics  vs.  Passage Bio

Beam Therapeutics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Beam Therapeutics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Beam Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Passage Bio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Passage Bio are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Passage Bio reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Beam Therapeutics and Passage Bio

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

The idea behind Beam Therapeutics and Passage Bio 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.