Correlation Between Castle Biosciences and T2 Biosystms

Can any of the company-specific risk be diversified away by investing in both Castle Biosciences 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 Castle Biosciences and T2 Biosystms into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Castle Biosciences and T2 Biosystms, you can compare the effects of market volatilities on Castle Biosciences 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 Castle Biosciences with a short position of T2 Biosystms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Castle Biosciences and T2 Biosystms.

Diversification Opportunities for Castle Biosciences and T2 Biosystms

0.74

Correlation Coefficient

Castle Biosciences  T2 Biosystms

Poor diversification

The 3 months correlation between Castle and TTOO is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Castle Biosciences and T2 Biosystms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T2 Biosystms 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 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 Castle Biosciences i.e., Castle Biosciences and T2 Biosystms go up and down completely randomly.

Pair Corralation between Castle Biosciences and T2 Biosystms

Given the investment horizon of 90 days Castle Biosciences is expected to under-perform the T2 Biosystms. But the stock apears to be less risky and, when comparing its historical volatility, Castle Biosciences is 6.46 times less risky than T2 Biosystms. The stock trades about -0.11 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 20, 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	71.19%
Values	Daily Returns

Castle Biosciences  vs.  T2 Biosystms

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.

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 Castle Biosciences and T2 Biosystms

The main advantage of trading using opposite Castle Biosciences and T2 Biosystms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Castle Biosciences 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 Castle Biosciences 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.