Correlation Between Beta Drugs and Linc

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

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

Diversification Opportunities for Beta Drugs and Linc

-0.18

Correlation Coefficient

Beta Drugs  Linc

Good diversification

The 3 months correlation between Beta and Linc is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Beta Drugs and Linc Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linc Limited and Beta Drugs 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 Beta Drugs are associated (or correlated) with Linc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linc Limited has no effect on the direction of Beta Drugs i.e., Beta Drugs and Linc go up and down completely randomly.

Pair Corralation between Beta Drugs and Linc

Assuming the 90 days trading horizon Beta Drugs is expected to generate 1.3 times more return on investment than Linc. However, Beta Drugs is 1.3 times more volatile than Linc Limited. It trades about 0.13 of its potential returns per unit of risk. Linc Limited is currently generating about 0.07 per unit of risk. If you would invest  171,385  in Beta Drugs on September 19, 2024 and sell it today you would earn a total of  41,065  from holding Beta Drugs or generate 23.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Beta Drugs  vs.  Linc Limited

Beta Drugs

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beta Drugs are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Beta Drugs unveiled solid returns over the last few months and may actually be approaching a breakup point.

Linc Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Linc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Beta Drugs and Linc

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

The idea behind Beta Drugs and Linc Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.