Correlation Between International Biotechnology and Trellus Health
Can any of the company-specific risk be diversified away by investing in both International Biotechnology and Trellus Health 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 International Biotechnology and Trellus Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and Trellus Health plc, you can compare the effects of market volatilities on International Biotechnology and Trellus Health 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 International Biotechnology with a short position of Trellus Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and Trellus Health.
Diversification Opportunities for International Biotechnology and Trellus Health
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between International and Trellus is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Trellus Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trellus Health plc and International Biotechnology 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 International Biotechnology Trust are associated (or correlated) with Trellus Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trellus Health plc has no effect on the direction of International Biotechnology i.e., International Biotechnology and Trellus Health go up and down completely randomly.
Pair Corralation between International Biotechnology and Trellus Health
Assuming the 90 days trading horizon International Biotechnology is expected to generate 188.82 times less return on investment than Trellus Health. But when comparing it to its historical volatility, International Biotechnology Trust is 162.95 times less risky than Trellus Health. It trades about 0.18 of its potential returns per unit of risk. Trellus Health plc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 57.00 in Trellus Health plc on October 25, 2024 and sell it today you would earn a total of 178.00 from holding Trellus Health plc or generate 312.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Biotechnology Tr vs. Trellus Health plc
Performance |
| Timeline |
| International Biotechnology |
| Trellus Health plc |
International Biotechnology and Trellus Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and Trellus Health
The main advantage of trading using opposite International Biotechnology and Trellus Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology position performs unexpectedly, Trellus Health 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 Trellus Health will offset losses from the drop in Trellus Health's long position.The idea behind International Biotechnology Trust and Trellus Health plc 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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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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