Correlation Between Burning Rock and Soleno Therapeutics

Can any of the company-specific risk be diversified away by investing in both Burning Rock and Soleno Therapeutics 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 Soleno Therapeutics 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 Soleno Therapeutics, you can compare the effects of market volatilities on Burning Rock and Soleno Therapeutics 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 Soleno Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burning Rock and Soleno Therapeutics.

Diversification Opportunities for Burning Rock and Soleno Therapeutics

-0.71

Correlation Coefficient

Burning Rock  Soleno Therapeutics

Pay attention - limited upside

The 3 months correlation between Burning and Soleno is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Burning Rock Biotech and Soleno Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soleno Therapeutics 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 Soleno Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soleno Therapeutics has no effect on the direction of Burning Rock i.e., Burning Rock and Soleno Therapeutics go up and down completely randomly.

Pair Corralation between Burning Rock and Soleno Therapeutics

Considering the 90-day investment horizon Burning Rock is expected to generate 1.01 times less return on investment than Soleno Therapeutics. In addition to that, Burning Rock is 1.66 times more volatile than Soleno Therapeutics. It trades about 0.03 of its total potential returns per unit of risk. Soleno Therapeutics is currently generating about 0.05 per unit of volatility. If you would invest  3,550  in Soleno Therapeutics on October 5, 2024 and sell it today you would earn a total of  1,086  from holding Soleno Therapeutics or generate 30.59% return on investment over 90 days.

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

Burning Rock Biotech  vs.  Soleno Therapeutics

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.

Soleno Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Soleno Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Soleno Therapeutics is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Burning Rock and Soleno Therapeutics

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

The idea behind Burning Rock Biotech and Soleno Therapeutics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.