Correlation Between Rapid Micro and Lifeline Biotechnologies

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

By analyzing existing cross correlation between Rapid Micro Biosystems and Lifeline Biotechnologies, you can compare the effects of market volatilities on Rapid Micro and Lifeline Biotechnologies 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 Rapid Micro with a short position of Lifeline Biotechnologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rapid Micro and Lifeline Biotechnologies.

Diversification Opportunities for Rapid Micro and Lifeline Biotechnologies

0.08

Correlation Coefficient

Rapid Micro  Lifeline Biotechnologies

Significant diversification

The 3 months correlation between Rapid and Lifeline is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Rapid Micro Biosystems and Lifeline Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeline Biotechnologies and Rapid Micro 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 Rapid Micro Biosystems are associated (or correlated) with Lifeline Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeline Biotechnologies has no effect on the direction of Rapid Micro i.e., Rapid Micro and Lifeline Biotechnologies go up and down completely randomly.

Pair Corralation between Rapid Micro and Lifeline Biotechnologies

Given the investment horizon of 90 days Rapid Micro is expected to generate 5.47 times less return on investment than Lifeline Biotechnologies. But when comparing it to its historical volatility, Rapid Micro Biosystems is 6.0 times less risky than Lifeline Biotechnologies. It trades about 0.23 of its potential returns per unit of risk. Lifeline Biotechnologies is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Lifeline Biotechnologies on December 21, 2024 and sell it today you would earn a total of  0.02  from holding Lifeline Biotechnologies or generate 200.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Rapid Micro Biosystems  vs.  Lifeline Biotechnologies

Rapid Micro Biosystems

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rapid Micro Biosystems are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward indicators, Rapid Micro exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lifeline Biotechnologies

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeline Biotechnologies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental drivers, Lifeline Biotechnologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rapid Micro and Lifeline Biotechnologies

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

The idea behind Rapid Micro Biosystems and Lifeline Biotechnologies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.