Correlation Between Linc and Beta Drugs

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

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

Diversification Opportunities for Linc and Beta Drugs

-0.18

Correlation Coefficient

Linc  Beta Drugs

Good diversification

The 3 months correlation between Linc and Beta is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Linc Limited and Beta Drugs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beta Drugs and Linc 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 Linc Limited are associated (or correlated) with Beta Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beta Drugs has no effect on the direction of Linc i.e., Linc and Beta Drugs go up and down completely randomly.

Pair Corralation between Linc and Beta Drugs

Assuming the 90 days trading horizon Linc is expected to generate 2.13 times less return on investment than Beta Drugs. But when comparing it to its historical volatility, Linc Limited is 1.28 times less risky than Beta Drugs. It trades about 0.1 of its potential returns per unit of risk. Beta Drugs is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  122,005  in Beta Drugs on September 19, 2024 and sell it today you would earn a total of  90,445  from holding Beta Drugs or generate 74.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.4%
Values	Daily Returns

Linc Limited  vs.  Beta Drugs

Linc Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Linc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Beta Drugs

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beta Drugs are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Beta Drugs unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Linc and Beta Drugs

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

The idea behind Linc Limited and Beta Drugs 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.