Correlation Between Illumina and T2 Biosystems

Can any of the company-specific risk be diversified away by investing in both Illumina and T2 Biosystems 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 T2 Biosystems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Illumina and T2 Biosystems, you can compare the effects of market volatilities on Illumina and T2 Biosystems 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 T2 Biosystems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Illumina and T2 Biosystems.

Diversification Opportunities for Illumina and T2 Biosystems

0.89

Correlation Coefficient

Illumina  T2 Biosystems

Very poor diversification

The 3 months correlation between Illumina and TTOO is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Illumina and T2 Biosystems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T2 Biosystems 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 T2 Biosystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T2 Biosystems has no effect on the direction of Illumina i.e., Illumina and T2 Biosystems go up and down completely randomly.

Pair Corralation between Illumina and T2 Biosystems

Given the investment horizon of 90 days Illumina is expected to under-perform the T2 Biosystems. But the stock apears to be less risky and, when comparing its historical volatility, Illumina is 9.5 times less risky than T2 Biosystems. The stock trades about -0.29 of its potential returns per unit of risk. The T2 Biosystems is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  35.00  in T2 Biosystems on December 20, 2024 and sell it today you would lose (17.00) from holding T2 Biosystems or give up 48.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	70.0%
Values	Daily Returns

Illumina  vs.  T2 Biosystems

Illumina

Risk-Adjusted Performance

Very Weak

Over the last 90 days Illumina has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

T2 Biosystems

Risk-Adjusted Performance

Weak

Over the last 90 days T2 Biosystems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, T2 Biosystems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illumina and T2 Biosystems

The main advantage of trading using opposite Illumina and T2 Biosystems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Illumina position performs unexpectedly, T2 Biosystems 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 T2 Biosystems will offset losses from the drop in T2 Biosystems' long position.

The idea behind Illumina and T2 Biosystems 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.