Correlation Between International Biotechnology and Wise Plc

Can any of the company-specific risk be diversified away by investing in both International Biotechnology and Wise Plc 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 Wise Plc 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 Wise plc, you can compare the effects of market volatilities on International Biotechnology and Wise Plc 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 Wise Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Wise Plc.

Diversification Opportunities for International Biotechnology and Wise Plc

0.86

Correlation Coefficient

International Biotechnology  Wise Plc

Very poor diversification

The 3 months correlation between International and Wise is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Wise plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wise plc 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 Wise Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wise plc has no effect on the direction of International Biotechnology i.e., International Biotechnology and Wise Plc go up and down completely randomly.

Pair Corralation between International Biotechnology and Wise Plc

Assuming the 90 days trading horizon International Biotechnology Trust is expected to generate 0.64 times more return on investment than Wise Plc. However, International Biotechnology Trust is 1.57 times less risky than Wise Plc. It trades about -0.03 of its potential returns per unit of risk. Wise plc is currently generating about -0.07 per unit of risk. If you would invest  68,000  in International Biotechnology Trust on December 25, 2024 and sell it today you would lose (1,800) from holding International Biotechnology Trust or give up 2.65% of portfolio value over 90 days.

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

International Biotechnology Tr  vs.  Wise plc

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.

Wise plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wise plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with International Biotechnology and Wise Plc

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

The idea behind International Biotechnology Trust and Wise plc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.