Correlation Between Incyte and Wave Life

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

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

Diversification Opportunities for Incyte and Wave Life

0.38

Correlation Coefficient

Incyte  Wave Life

Weak diversification

The 3 months correlation between Incyte and Wave is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Wave Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Life Sciences 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 Wave Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Life Sciences has no effect on the direction of Incyte i.e., Incyte and Wave Life go up and down completely randomly.

Pair Corralation between Incyte and Wave Life

Given the investment horizon of 90 days Incyte is expected to generate 0.52 times more return on investment than Wave Life. However, Incyte is 1.92 times less risky than Wave Life. It trades about -0.09 of its potential returns per unit of risk. Wave Life Sciences is currently generating about -0.12 per unit of risk. If you would invest  6,923  in Incyte on December 27, 2024 and sell it today you would lose (855.00) from holding Incyte or give up 12.35% of portfolio value over 90 days.

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

Incyte  vs.  Wave Life Sciences

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.

Wave Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wave Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Incyte and Wave Life

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

The idea behind Incyte and Wave Life Sciences 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.