Correlation Between CSL and United Therapeutics

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

By analyzing existing cross correlation between CSL LTD SPONADR and United Therapeutics, you can compare the effects of market volatilities on CSL and United 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 CSL with a short position of United Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSL and United Therapeutics.

Diversification Opportunities for CSL and United Therapeutics

-0.39

Correlation Coefficient

CSL  United Therapeutics

Very good diversification

The 3 months correlation between CSL and United is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding CSL LTD SPONADR and United Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Therapeutics and CSL 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 CSL LTD SPONADR are associated (or correlated) with United Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Therapeutics has no effect on the direction of CSL i.e., CSL and United Therapeutics go up and down completely randomly.

Pair Corralation between CSL and United Therapeutics

Assuming the 90 days trading horizon CSL LTD SPONADR is expected to generate 0.6 times more return on investment than United Therapeutics. However, CSL LTD SPONADR is 1.66 times less risky than United Therapeutics. It trades about -0.04 of its potential returns per unit of risk. United Therapeutics is currently generating about -0.09 per unit of risk. If you would invest  8,650  in CSL LTD SPONADR on October 10, 2024 and sell it today you would lose (200.00) from holding CSL LTD SPONADR or give up 2.31% of portfolio value over 90 days.

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

CSL LTD SPONADR  vs.  United Therapeutics

CSL LTD SPONADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL LTD SPONADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, CSL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

United Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Therapeutics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Therapeutics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CSL and United Therapeutics

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

The idea behind CSL LTD SPONADR and United 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 CEOs Directory module to screen CEOs from public companies around the world.