Correlation Between Castle Biosciences and Burning Rock

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

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

Diversification Opportunities for Castle Biosciences and Burning Rock

-0.33

Correlation Coefficient

Castle Biosciences  Burning Rock

Very good diversification

The 3 months correlation between Castle and Burning is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Castle Biosciences and Burning Rock Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burning Rock Biotech and Castle Biosciences 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 Castle Biosciences are associated (or correlated) with Burning Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burning Rock Biotech has no effect on the direction of Castle Biosciences i.e., Castle Biosciences and Burning Rock go up and down completely randomly.

Pair Corralation between Castle Biosciences and Burning Rock

Given the investment horizon of 90 days Castle Biosciences is expected to under-perform the Burning Rock. But the stock apears to be less risky and, when comparing its historical volatility, Castle Biosciences is 4.43 times less risky than Burning Rock. The stock trades about -0.05 of its potential returns per unit of risk. The Burning Rock Biotech is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  460.00  in Burning Rock Biotech on September 20, 2024 and sell it today you would earn a total of  212.00  from holding Burning Rock Biotech or generate 46.09% return on investment over 90 days.

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

Castle Biosciences  vs.  Burning Rock Biotech

Castle Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Castle Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Burning Rock Biotech

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Burning Rock Biotech are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Burning Rock reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Castle Biosciences and Burning Rock

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

The idea behind Castle Biosciences and Burning Rock Biotech 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.