Correlation Between Charles River and Castle Biosciences

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

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

Diversification Opportunities for Charles River and Castle Biosciences

0.25

Correlation Coefficient

Charles River  Castle Biosciences

Modest diversification

The 3 months correlation between Charles and Castle is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Charles River Laboratories and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Charles River 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 Charles River Laboratories 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 Charles River i.e., Charles River and Castle Biosciences go up and down completely randomly.

Pair Corralation between Charles River and Castle Biosciences

Considering the 90-day investment horizon Charles River Laboratories is expected to generate 0.61 times more return on investment than Castle Biosciences. However, Charles River Laboratories is 1.64 times less risky than Castle Biosciences. It trades about -0.1 of its potential returns per unit of risk. Castle Biosciences is currently generating about -0.1 per unit of risk. If you would invest  18,342  in Charles River Laboratories on December 29, 2024 and sell it today you would lose (2,787) from holding Charles River Laboratories or give up 15.19% of portfolio value over 90 days.

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

Charles River Laboratories  vs.  Castle Biosciences

Charles River Labora

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charles River Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Castle Biosciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Castle Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Charles River and Castle Biosciences

The main advantage of trading using opposite Charles River and Castle Biosciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charles River 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 Charles River Laboratories 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.