Correlation Between Day One and IO Biotech

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

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

Diversification Opportunities for Day One and IO Biotech

0.62

Correlation Coefficient

Day One  IO Biotech

Poor diversification

The 3 months correlation between Day and IOBT is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Day One Biopharmaceuticals and IO Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IO Biotech and Day One 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 Day One Biopharmaceuticals are associated (or correlated) with IO Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IO Biotech has no effect on the direction of Day One i.e., Day One and IO Biotech go up and down completely randomly.

Pair Corralation between Day One and IO Biotech

Given the investment horizon of 90 days Day One Biopharmaceuticals is expected to under-perform the IO Biotech. But the stock apears to be less risky and, when comparing its historical volatility, Day One Biopharmaceuticals is 3.64 times less risky than IO Biotech. The stock trades about -0.03 of its potential returns per unit of risk. The IO Biotech is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  78.00  in IO Biotech on September 15, 2024 and sell it today you would earn a total of  3.00  from holding IO Biotech or generate 3.85% return on investment over 90 days.

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

Day One Biopharmaceuticals  vs.  IO Biotech

Day One Biopharmaceu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Day One Biopharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Day One is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

IO Biotech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IO Biotech are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, IO Biotech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Day One and IO Biotech

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

The idea behind Day One Biopharmaceuticals and IO 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.