Correlation Between BioArctic and Active Biotech

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

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

Diversification Opportunities for BioArctic and Active Biotech

0.41

Correlation Coefficient

BioArctic  Active Biotech

Very weak diversification

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

Pair Corralation between BioArctic and Active Biotech

Assuming the 90 days trading horizon BioArctic is expected to generate 3.94 times less return on investment than Active Biotech. But when comparing it to its historical volatility, BioArctic AB is 5.65 times less risky than Active Biotech. It trades about 0.07 of its potential returns per unit of risk. Active Biotech AB is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  44.00  in Active Biotech AB on August 31, 2024 and sell it today you would lose (19.00) from holding Active Biotech AB or give up 43.18% of portfolio value over 90 days.

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

BioArctic AB  vs.  Active Biotech AB

BioArctic AB

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BioArctic AB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BioArctic sustained solid returns over the last few months and may actually be approaching a breakup point.

Active Biotech AB

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with BioArctic and Active Biotech

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

The idea behind BioArctic AB and Active Biotech AB 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.