Correlation Between Lonza Group and Basilea Pharmaceutica

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

By analyzing existing cross correlation between Lonza Group AG and Basilea Pharmaceutica AG, you can compare the effects of market volatilities on Lonza Group and Basilea Pharmaceutica 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 Lonza Group with a short position of Basilea Pharmaceutica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lonza Group and Basilea Pharmaceutica.

Diversification Opportunities for Lonza Group and Basilea Pharmaceutica

0.35

Correlation Coefficient

Lonza Group  Basilea Pharmaceutica

Weak diversification

The 3 months correlation between Lonza and Basilea is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Lonza Group AG and Basilea Pharmaceutica AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basilea Pharmaceutica and Lonza Group 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 Lonza Group AG are associated (or correlated) with Basilea Pharmaceutica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basilea Pharmaceutica has no effect on the direction of Lonza Group i.e., Lonza Group and Basilea Pharmaceutica go up and down completely randomly.

Pair Corralation between Lonza Group and Basilea Pharmaceutica

Assuming the 90 days trading horizon Lonza Group AG is expected to generate 1.15 times more return on investment than Basilea Pharmaceutica. However, Lonza Group is 1.15 times more volatile than Basilea Pharmaceutica AG. It trades about 0.21 of its potential returns per unit of risk. Basilea Pharmaceutica AG is currently generating about 0.18 per unit of risk. If you would invest  52,320  in Lonza Group AG on October 11, 2024 and sell it today you would earn a total of  3,360  from holding Lonza Group AG or generate 6.42% return on investment over 90 days.

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

Lonza Group AG  vs.  Basilea Pharmaceutica AG

Lonza Group AG

Risk-Adjusted Performance

5 of 100

Modest

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

Basilea Pharmaceutica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basilea Pharmaceutica AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Basilea Pharmaceutica is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Lonza Group and Basilea Pharmaceutica

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

The idea behind Lonza Group AG and Basilea Pharmaceutica AG 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.