Correlation Between Burning Rock and Castle Biosciences

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

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

Diversification Opportunities for Burning Rock and Castle Biosciences

-0.33

Correlation Coefficient

Burning Rock  Castle Biosciences

Very good diversification

The 3 months correlation between Burning and Castle is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Burning Rock Biotech and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Burning Rock 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 Burning Rock Biotech are associated (or correlated) with Castle Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castle Biosciences has no effect on the direction of Burning Rock i.e., Burning Rock and Castle Biosciences go up and down completely randomly.

Pair Corralation between Burning Rock and Castle Biosciences

Considering the 90-day investment horizon Burning Rock Biotech is expected to generate 4.43 times more return on investment than Castle Biosciences. However, Burning Rock is 4.43 times more volatile than Castle Biosciences. It trades about 0.23 of its potential returns per unit of risk. Castle Biosciences is currently generating about -0.05 per unit of risk. If you would invest  460.00  in Burning Rock Biotech on September 20, 2024 and sell it today you would earn a total of  212.00  from holding Burning Rock Biotech or generate 46.09% return on investment over 90 days.

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

Burning Rock Biotech  vs.  Castle Biosciences

Burning Rock Biotech

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Burning Rock Biotech are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Burning Rock reported solid returns over the last few months and may actually be approaching a breakup point.

Castle Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Castle Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Burning Rock and Castle Biosciences

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

The idea behind Burning Rock Biotech and Castle Biosciences 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.