Correlation Between Precision BioSciences and Design Therapeutics

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

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

Diversification Opportunities for Precision BioSciences and Design Therapeutics

-0.51

Correlation Coefficient

Precision BioSciences  Design Therapeutics

Excellent diversification

The 3 months correlation between Precision and Design is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Precision BioSciences and Design Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Design Therapeutics and Precision 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 Precision BioSciences are associated (or correlated) with Design Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Design Therapeutics has no effect on the direction of Precision BioSciences i.e., Precision BioSciences and Design Therapeutics go up and down completely randomly.

Pair Corralation between Precision BioSciences and Design Therapeutics

Given the investment horizon of 90 days Precision BioSciences is expected to generate 1.09 times more return on investment than Design Therapeutics. However, Precision BioSciences is 1.09 times more volatile than Design Therapeutics. It trades about 0.02 of its potential returns per unit of risk. Design Therapeutics is currently generating about -0.08 per unit of risk. If you would invest  465.00  in Precision BioSciences on December 27, 2024 and sell it today you would lose (12.00) from holding Precision BioSciences or give up 2.58% of portfolio value over 90 days.

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

Precision BioSciences  vs.  Design Therapeutics

Precision BioSciences

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Precision BioSciences are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Precision BioSciences may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Design Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Design Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Precision BioSciences and Design Therapeutics

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

The idea behind Precision BioSciences and Design 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.