Correlation Between ABL Bio and Celltrion Pharm
Can any of the company-specific risk be diversified away by investing in both ABL Bio and Celltrion Pharm 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 ABL Bio and Celltrion Pharm into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABL Bio and Celltrion Pharm, you can compare the effects of market volatilities on ABL Bio and Celltrion Pharm 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 ABL Bio with a short position of Celltrion Pharm. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABL Bio and Celltrion Pharm.
Diversification Opportunities for ABL Bio and Celltrion Pharm
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between ABL and Celltrion is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding ABL Bio and Celltrion Pharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Celltrion Pharm and ABL Bio 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 ABL Bio are associated (or correlated) with Celltrion Pharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Celltrion Pharm has no effect on the direction of ABL Bio i.e., ABL Bio and Celltrion Pharm go up and down completely randomly.
Pair Corralation between ABL Bio and Celltrion Pharm
Assuming the 90 days trading horizon ABL Bio is expected to generate 1.46 times more return on investment than Celltrion Pharm. However, ABL Bio is 1.46 times more volatile than Celltrion Pharm. It trades about -0.01 of its potential returns per unit of risk. Celltrion Pharm is currently generating about -0.07 per unit of risk. If you would invest 3,130,000 in ABL Bio on October 1, 2024 and sell it today you would lose (285,000) from holding ABL Bio or give up 9.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ABL Bio vs. Celltrion Pharm
Performance |
| Timeline |
| ABL Bio |
| Celltrion Pharm |
ABL Bio and Celltrion Pharm Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABL Bio and Celltrion Pharm
The main advantage of trading using opposite ABL Bio and Celltrion Pharm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABL Bio position performs unexpectedly, Celltrion Pharm 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 Celltrion Pharm will offset losses from the drop in Celltrion Pharm's long position.The idea behind ABL Bio and Celltrion Pharm 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.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Celltrion Pharm as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Celltrion Pharm's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Celltrion Pharm's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Celltrion Pharm.
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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