Correlation Between HUTCHMED DRC and M3 Brigade

Can any of the company-specific risk be diversified away by investing in both HUTCHMED DRC and M3 Brigade 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 HUTCHMED DRC and M3 Brigade into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HUTCHMED DRC and M3 Brigade Acquisition V, you can compare the effects of market volatilities on HUTCHMED DRC and M3 Brigade 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 HUTCHMED DRC with a short position of M3 Brigade. Check out your portfolio center. Please also check ongoing floating volatility patterns of HUTCHMED DRC and M3 Brigade.

Diversification Opportunities for HUTCHMED DRC and M3 Brigade

0.47

Correlation Coefficient

HUTCHMED DRC  M3 Brigade

Very weak diversification

The 3 months correlation between HUTCHMED and MBAVW is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding HUTCHMED DRC and M3 Brigade Acquisition V in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M3 Brigade Acquisition and HUTCHMED DRC 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 HUTCHMED DRC are associated (or correlated) with M3 Brigade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M3 Brigade Acquisition has no effect on the direction of HUTCHMED DRC i.e., HUTCHMED DRC and M3 Brigade go up and down completely randomly.

Pair Corralation between HUTCHMED DRC and M3 Brigade

Considering the 90-day investment horizon HUTCHMED DRC is expected to generate 4.11 times less return on investment than M3 Brigade. But when comparing it to its historical volatility, HUTCHMED DRC is 1.65 times less risky than M3 Brigade. It trades about 0.08 of its potential returns per unit of risk. M3 Brigade Acquisition V is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  18.00  in M3 Brigade Acquisition V on December 21, 2024 and sell it today you would earn a total of  9.00  from holding M3 Brigade Acquisition V or generate 50.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	72.88%
Values	Daily Returns

HUTCHMED DRC  vs.  M3 Brigade Acquisition V

HUTCHMED DRC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HUTCHMED DRC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, HUTCHMED DRC displayed solid returns over the last few months and may actually be approaching a breakup point.

M3 Brigade Acquisition

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in M3 Brigade Acquisition V are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, M3 Brigade showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HUTCHMED DRC and M3 Brigade

The main advantage of trading using opposite HUTCHMED DRC and M3 Brigade positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HUTCHMED DRC position performs unexpectedly, M3 Brigade 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 M3 Brigade will offset losses from the drop in M3 Brigade's long position.

The idea behind HUTCHMED DRC and M3 Brigade Acquisition V 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.