Correlation Between Berkshire Hathaway and Lifeline Biotechnologies

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

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

Diversification Opportunities for Berkshire Hathaway and Lifeline Biotechnologies

-0.26

Correlation Coefficient

Berkshire Hathaway  Lifeline Biotechnologies

Very good diversification

The 3 months correlation between Berkshire and Lifeline is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway and Lifeline Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeline Biotechnologies and Berkshire Hathaway 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 Berkshire Hathaway are associated (or correlated) with Lifeline Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeline Biotechnologies has no effect on the direction of Berkshire Hathaway i.e., Berkshire Hathaway and Lifeline Biotechnologies go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Lifeline Biotechnologies

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 173.41 times less return on investment than Lifeline Biotechnologies. But when comparing it to its historical volatility, Berkshire Hathaway is 109.2 times less risky than Lifeline Biotechnologies. It trades about 0.09 of its potential returns per unit of risk. Lifeline Biotechnologies is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Lifeline Biotechnologies on October 12, 2024 and sell it today you would earn a total of  0.00  from holding Lifeline Biotechnologies or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.36%
Values	Daily Returns

Berkshire Hathaway  vs.  Lifeline Biotechnologies

Berkshire Hathaway

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lifeline Biotechnologies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeline Biotechnologies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, Lifeline Biotechnologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Lifeline Biotechnologies

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

The idea behind Berkshire Hathaway and Lifeline Biotechnologies 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.