Correlation Between ABL Bio and LegoChem Biosciences

Can any of the company-specific risk be diversified away by investing in both ABL Bio and LegoChem Biosciences 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 LegoChem Biosciences into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ABL Bio and LegoChem Biosciences, you can compare the effects of market volatilities on ABL Bio and LegoChem Biosciences 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 LegoChem Biosciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABL Bio and LegoChem Biosciences.

Diversification Opportunities for ABL Bio and LegoChem Biosciences

0.87

Correlation Coefficient

ABL Bio  LegoChem Biosciences

Very poor diversification

The 3 months correlation between ABL and LegoChem is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding ABL Bio and LegoChem Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LegoChem Biosciences 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 LegoChem Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LegoChem Biosciences has no effect on the direction of ABL Bio i.e., ABL Bio and LegoChem Biosciences go up and down completely randomly.

Pair Corralation between ABL Bio and LegoChem Biosciences

Assuming the 90 days trading horizon ABL Bio is expected to generate 14.07 times less return on investment than LegoChem Biosciences. In addition to that, ABL Bio is 1.01 times more volatile than LegoChem Biosciences. It trades about 0.0 of its total potential returns per unit of risk. LegoChem Biosciences is currently generating about 0.07 per unit of volatility. If you would invest  8,660,000  in LegoChem Biosciences on September 4, 2024 and sell it today you would earn a total of  1,130,000  from holding LegoChem Biosciences or generate 13.05% return on investment over 90 days.

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

ABL Bio  vs.  LegoChem Biosciences

ABL Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABL Bio has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ABL Bio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LegoChem Biosciences

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LegoChem Biosciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LegoChem Biosciences sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABL Bio and LegoChem Biosciences

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

The idea behind ABL Bio and LegoChem Biosciences 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.