Correlation Between Illumina and Castle Biosciences

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

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

Diversification Opportunities for Illumina and Castle Biosciences

0.69

Correlation Coefficient

Illumina  Castle Biosciences

Poor diversification

The 3 months correlation between Illumina and Castle is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Illumina and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Illumina 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 Illumina are associated (or correlated) with Castle Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castle Biosciences has no effect on the direction of Illumina i.e., Illumina and Castle Biosciences go up and down completely randomly.

Pair Corralation between Illumina and Castle Biosciences

Given the investment horizon of 90 days Illumina is expected to generate 0.71 times more return on investment than Castle Biosciences. However, Illumina is 1.41 times less risky than Castle Biosciences. It trades about 0.08 of its potential returns per unit of risk. Castle Biosciences is currently generating about 0.03 per unit of risk. If you would invest  13,140  in Illumina on August 30, 2024 and sell it today you would earn a total of  1,296  from holding Illumina or generate 9.86% return on investment over 90 days.

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

Illumina  vs.  Castle Biosciences

Illumina

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Illumina are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Illumina may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Castle Biosciences

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Castle Biosciences are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Castle Biosciences is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Illumina and Castle Biosciences

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

The idea behind Illumina and Castle Biosciences 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.