Correlation Between Biotron and PhaseBio Pharmaceuticals

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

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

Diversification Opportunities for Biotron and PhaseBio Pharmaceuticals

0.07

Correlation Coefficient

Biotron  PhaseBio Pharmaceuticals

Significant diversification

The 3 months correlation between Biotron and PhaseBio is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Biotron Limited and PhaseBio Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PhaseBio Pharmaceuticals and Biotron 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 Biotron Limited are associated (or correlated) with PhaseBio Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PhaseBio Pharmaceuticals has no effect on the direction of Biotron i.e., Biotron and PhaseBio Pharmaceuticals go up and down completely randomly.

Pair Corralation between Biotron and PhaseBio Pharmaceuticals

Assuming the 90 days horizon Biotron is expected to generate 13.36 times less return on investment than PhaseBio Pharmaceuticals. But when comparing it to its historical volatility, Biotron Limited is 3.43 times less risky than PhaseBio Pharmaceuticals. It trades about 0.04 of its potential returns per unit of risk. PhaseBio Pharmaceuticals is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2.00  in PhaseBio Pharmaceuticals on September 4, 2024 and sell it today you would lose (1.97) from holding PhaseBio Pharmaceuticals or give up 98.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	30.44%
Values	Daily Returns

Biotron Limited  vs.  PhaseBio Pharmaceuticals

Biotron Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biotron Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PhaseBio Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PhaseBio Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, PhaseBio Pharmaceuticals is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Biotron and PhaseBio Pharmaceuticals

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

The idea behind Biotron Limited and PhaseBio Pharmaceuticals 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.