Correlation Between International Biotechnology and Life Science

Can any of the company-specific risk be diversified away by investing in both International Biotechnology and Life Science 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 International Biotechnology and Life Science into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between International Biotechnology Trust and Life Science REIT, you can compare the effects of market volatilities on International Biotechnology and Life Science 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 International Biotechnology with a short position of Life Science. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Life Science.

Diversification Opportunities for International Biotechnology and Life Science

-0.56

Correlation Coefficient

International Biotechnology  Life Science

Excellent diversification

The 3 months correlation between International and Life is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Life Science REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Science REIT and International Biotechnology 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 International Biotechnology Trust are associated (or correlated) with Life Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Science REIT has no effect on the direction of International Biotechnology i.e., International Biotechnology and Life Science go up and down completely randomly.

Pair Corralation between International Biotechnology and Life Science

Assuming the 90 days trading horizon International Biotechnology Trust is expected to under-perform the Life Science. But the stock apears to be less risky and, when comparing its historical volatility, International Biotechnology Trust is 2.46 times less risky than Life Science. The stock trades about -0.03 of its potential returns per unit of risk. The Life Science REIT is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,900  in Life Science REIT on December 25, 2024 and sell it today you would earn a total of  700.00  from holding Life Science REIT or generate 17.95% return on investment over 90 days.

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

International Biotechnology Tr  vs.  Life Science REIT

International Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Biotechnology Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, International Biotechnology is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Life Science REIT

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Life Science REIT are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Life Science unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Biotechnology and Life Science

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

The idea behind International Biotechnology Trust and Life Science REIT 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.