Correlation Between Living Cell and Defence Therapeutics

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

By analyzing existing cross correlation between Living Cell Technologies and Defence Therapeutics, you can compare the effects of market volatilities on Living Cell and Defence Therapeutics 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 Living Cell with a short position of Defence Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Living Cell and Defence Therapeutics.

Diversification Opportunities for Living Cell and Defence Therapeutics

0.43

Correlation Coefficient

Living Cell  Defence Therapeutics

Very weak diversification

The 3 months correlation between Living and Defence is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Living Cell Technologies and Defence Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defence Therapeutics and Living Cell 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 Living Cell Technologies are associated (or correlated) with Defence Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defence Therapeutics has no effect on the direction of Living Cell i.e., Living Cell and Defence Therapeutics go up and down completely randomly.

Pair Corralation between Living Cell and Defence Therapeutics

Assuming the 90 days horizon Living Cell Technologies is expected to generate 5.2 times more return on investment than Defence Therapeutics. However, Living Cell is 5.2 times more volatile than Defence Therapeutics. It trades about 0.13 of its potential returns per unit of risk. Defence Therapeutics is currently generating about 0.18 per unit of risk. If you would invest  0.51  in Living Cell Technologies on December 27, 2024 and sell it today you would lose (0.11) from holding Living Cell Technologies or give up 21.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Living Cell Technologies  vs.  Defence Therapeutics

Living Cell Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Living Cell Technologies are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting essential indicators, Living Cell reported solid returns over the last few months and may actually be approaching a breakup point.

Defence Therapeutics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defence Therapeutics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Defence Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Living Cell and Defence Therapeutics

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

The idea behind Living Cell Technologies and Defence Therapeutics 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.