Correlation Between Life Science and In Style

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

By analyzing existing cross correlation between Life Science REIT and in Style Group, you can compare the effects of market volatilities on Life Science and In Style 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 Life Science with a short position of In Style. Check out your portfolio center. Please also check ongoing floating volatility patterns of Life Science and In Style.

Diversification Opportunities for Life Science and In Style

-0.28

Correlation Coefficient

Life Science  In Style

Very good diversification

The 3 months correlation between Life and ITS is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Life Science REIT and in Style Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on in Style Group and Life Science 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 Life Science REIT are associated (or correlated) with In Style. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of in Style Group has no effect on the direction of Life Science i.e., Life Science and In Style go up and down completely randomly.

Pair Corralation between Life Science and In Style

Assuming the 90 days trading horizon Life Science REIT is expected to generate 0.84 times more return on investment than In Style. However, Life Science REIT is 1.19 times less risky than In Style. It trades about 0.16 of its potential returns per unit of risk. in Style Group is currently generating about 0.1 per unit of risk. If you would invest  3,750  in Life Science REIT on September 26, 2024 and sell it today you would earn a total of  150.00  from holding Life Science REIT or generate 4.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

Life Science REIT  vs.  in Style Group

Life Science REIT

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Life Science REIT are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Life Science unveiled solid returns over the last few months and may actually be approaching a breakup point.

in Style Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days in Style Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, In Style is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Life Science and In Style

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

The idea behind Life Science REIT and in Style Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.