Correlation Between Charles River and T2 Biosystms

Can any of the company-specific risk be diversified away by investing in both Charles River and T2 Biosystms 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 T2 Biosystms 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 T2 Biosystms, you can compare the effects of market volatilities on Charles River and T2 Biosystms 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 T2 Biosystms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charles River and T2 Biosystms.

Diversification Opportunities for Charles River and T2 Biosystms

0.65

Correlation Coefficient

Charles River  T2 Biosystms

Poor diversification

The 3 months correlation between Charles and TTOO is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Charles River Laboratories and T2 Biosystms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T2 Biosystms 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 T2 Biosystms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T2 Biosystms has no effect on the direction of Charles River i.e., Charles River and T2 Biosystms go up and down completely randomly.

Pair Corralation between Charles River and T2 Biosystms

Considering the 90-day investment horizon Charles River Laboratories is expected to under-perform the T2 Biosystms. But the stock apears to be less risky and, when comparing its historical volatility, Charles River Laboratories is 10.86 times less risky than T2 Biosystms. The stock trades about -0.02 of its potential returns per unit of risk. The T2 Biosystms is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  35.00  in T2 Biosystms on December 18, 2024 and sell it today you would lose (17.00) from holding T2 Biosystms or give up 48.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	74.58%
Values	Daily Returns

Charles River Laboratories  vs.  T2 Biosystms

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 quite persistent basic indicators, Charles River is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

T2 Biosystms

Risk-Adjusted Performance

Weak

Over the last 90 days T2 Biosystms has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, T2 Biosystms displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charles River and T2 Biosystms

The main advantage of trading using opposite Charles River and T2 Biosystms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charles River position performs unexpectedly, T2 Biosystms 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 T2 Biosystms will offset losses from the drop in T2 Biosystms' long position.

The idea behind Charles River Laboratories and T2 Biosystms 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.