Correlation Between Zai Lab and Brown Advisory

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

By analyzing existing cross correlation between Zai Lab and Brown Advisory Growth, you can compare the effects of market volatilities on Zai Lab and Brown Advisory 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 Zai Lab with a short position of Brown Advisory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zai Lab and Brown Advisory.

Diversification Opportunities for Zai Lab and Brown Advisory

-0.82

Correlation Coefficient

Zai Lab  Brown Advisory

Pay attention - limited upside

The 3 months correlation between Zai and Brown is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Zai Lab and Brown Advisory Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Advisory Growth and Zai Lab 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 Zai Lab are associated (or correlated) with Brown Advisory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Advisory Growth has no effect on the direction of Zai Lab i.e., Zai Lab and Brown Advisory go up and down completely randomly.

Pair Corralation between Zai Lab and Brown Advisory

Given the investment horizon of 90 days Zai Lab is expected to generate 2.79 times more return on investment than Brown Advisory. However, Zai Lab is 2.79 times more volatile than Brown Advisory Growth. It trades about 0.15 of its potential returns per unit of risk. Brown Advisory Growth is currently generating about -0.1 per unit of risk. If you would invest  2,722  in Zai Lab on December 25, 2024 and sell it today you would earn a total of  787.00  from holding Zai Lab or generate 28.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Zai Lab  vs.  Brown Advisory Growth

Zai Lab

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Brown Advisory Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brown Advisory Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Zai Lab and Brown Advisory

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

The idea behind Zai Lab and Brown Advisory Growth 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.