Correlation Between Haleon Plc and Zai Lab

Can any of the company-specific risk be diversified away by investing in both Haleon Plc and Zai Lab 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 Haleon Plc and Zai Lab into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Haleon plc and Zai Lab, you can compare the effects of market volatilities on Haleon Plc and Zai Lab 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 Haleon Plc with a short position of Zai Lab. Check out your portfolio center. Please also check ongoing floating volatility patterns of Haleon Plc and Zai Lab.

Diversification Opportunities for Haleon Plc and Zai Lab

0.89

Correlation Coefficient

Haleon Plc  Zai Lab

Very poor diversification

The 3 months correlation between Haleon and Zai is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Haleon plc and Zai Lab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zai Lab and Haleon Plc 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 Haleon plc are associated (or correlated) with Zai Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zai Lab has no effect on the direction of Haleon Plc i.e., Haleon Plc and Zai Lab go up and down completely randomly.

Pair Corralation between Haleon Plc and Zai Lab

Considering the 90-day investment horizon Haleon Plc is expected to generate 5.75 times less return on investment than Zai Lab. But when comparing it to its historical volatility, Haleon plc is 2.27 times less risky than Zai Lab. It trades about 0.06 of its potential returns per unit of risk. Zai Lab is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,661  in Zai Lab on December 27, 2024 and sell it today you would earn a total of  730.00  from holding Zai Lab or generate 27.43% return on investment over 90 days.

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

Haleon plc  vs.  Zai Lab

Haleon plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Haleon plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Haleon Plc is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Zai Lab

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Haleon Plc and Zai Lab

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

The idea behind Haleon plc and Zai Lab 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.