Correlation Between Incyte and Jazz Pharmaceuticals

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

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

Diversification Opportunities for Incyte and Jazz Pharmaceuticals

-0.42

Correlation Coefficient

Incyte  Jazz Pharmaceuticals

Very good diversification

The 3 months correlation between Incyte and Jazz is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Jazz Pharmaceuticals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jazz Pharmaceuticals PLC and Incyte 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 Incyte are associated (or correlated) with Jazz Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jazz Pharmaceuticals PLC has no effect on the direction of Incyte i.e., Incyte and Jazz Pharmaceuticals go up and down completely randomly.

Pair Corralation between Incyte and Jazz Pharmaceuticals

Given the investment horizon of 90 days Incyte is expected to under-perform the Jazz Pharmaceuticals. In addition to that, Incyte is 1.41 times more volatile than Jazz Pharmaceuticals PLC. It trades about -0.09 of its total potential returns per unit of risk. Jazz Pharmaceuticals PLC is currently generating about 0.16 per unit of volatility. If you would invest  12,297  in Jazz Pharmaceuticals PLC on December 20, 2024 and sell it today you would earn a total of  1,910  from holding Jazz Pharmaceuticals PLC or generate 15.53% return on investment over 90 days.

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

Incyte  vs.  Jazz Pharmaceuticals PLC

Incyte

Risk-Adjusted Performance

Very Weak

Over the last 90 days Incyte has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Jazz Pharmaceuticals PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jazz Pharmaceuticals PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Jazz Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Incyte and Jazz Pharmaceuticals

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

The idea behind Incyte and Jazz Pharmaceuticals 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.