Correlation Between Basilea Pharmaceutica and Lonza Group

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

By analyzing existing cross correlation between Basilea Pharmaceutica AG and Lonza Group AG, you can compare the effects of market volatilities on Basilea Pharmaceutica and Lonza Group 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 Basilea Pharmaceutica with a short position of Lonza Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basilea Pharmaceutica and Lonza Group.

Diversification Opportunities for Basilea Pharmaceutica and Lonza Group

0.35

Correlation Coefficient

Basilea Pharmaceutica  Lonza Group

Weak diversification

The 3 months correlation between Basilea and Lonza is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Basilea Pharmaceutica AG and Lonza Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lonza Group AG and Basilea Pharmaceutica 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 Basilea Pharmaceutica AG are associated (or correlated) with Lonza Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lonza Group AG has no effect on the direction of Basilea Pharmaceutica i.e., Basilea Pharmaceutica and Lonza Group go up and down completely randomly.

Pair Corralation between Basilea Pharmaceutica and Lonza Group

Assuming the 90 days trading horizon Basilea Pharmaceutica is expected to generate 1.35 times less return on investment than Lonza Group. But when comparing it to its historical volatility, Basilea Pharmaceutica AG is 1.15 times less risky than Lonza Group. It trades about 0.18 of its potential returns per unit of risk. Lonza Group AG is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  52,320  in Lonza Group AG on October 11, 2024 and sell it today you would earn a total of  3,360  from holding Lonza Group AG or generate 6.42% return on investment over 90 days.

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

Basilea Pharmaceutica AG  vs.  Lonza Group AG

Basilea Pharmaceutica

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lonza Group AG

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lonza Group AG are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lonza Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Basilea Pharmaceutica and Lonza Group

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

The idea behind Basilea Pharmaceutica AG and Lonza Group AG 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.