Correlation Between BB Biotech and IShares SMIM

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

By analyzing existing cross correlation between BB Biotech AG and iShares SMIM ETF, you can compare the effects of market volatilities on BB Biotech and IShares SMIM 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 BB Biotech with a short position of IShares SMIM. Check out your portfolio center. Please also check ongoing floating volatility patterns of BB Biotech and IShares SMIM.

Diversification Opportunities for BB Biotech and IShares SMIM

-0.31

Correlation Coefficient

BB Biotech  IShares SMIM

Very good diversification

The 3 months correlation between BION and IShares is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding BB Biotech AG and iShares SMIM ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SMIM ETF and BB Biotech 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 BB Biotech AG are associated (or correlated) with IShares SMIM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SMIM ETF has no effect on the direction of BB Biotech i.e., BB Biotech and IShares SMIM go up and down completely randomly.

Pair Corralation between BB Biotech and IShares SMIM

Assuming the 90 days trading horizon BB Biotech AG is expected to under-perform the IShares SMIM. In addition to that, BB Biotech is 1.9 times more volatile than iShares SMIM ETF. It trades about -0.04 of its total potential returns per unit of risk. iShares SMIM ETF is currently generating about -0.02 per unit of volatility. If you would invest  27,945  in iShares SMIM ETF on September 17, 2024 and sell it today you would lose (320.00) from holding iShares SMIM ETF or give up 1.15% of portfolio value over 90 days.

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

BB Biotech AG  vs.  iShares SMIM ETF

BB Biotech AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BB Biotech AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, BB Biotech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares SMIM ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares SMIM ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares SMIM is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BB Biotech and IShares SMIM

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

The idea behind BB Biotech AG and iShares SMIM ETF 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.