Correlation Between Industrial and BeiGene

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

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

Diversification Opportunities for Industrial and BeiGene

0.3

Correlation Coefficient

Industrial  BeiGene

Weak diversification

The 3 months correlation between Industrial and BeiGene is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and BeiGene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BeiGene and Industrial 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 Industrial and Commercial are associated (or correlated) with BeiGene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BeiGene has no effect on the direction of Industrial i.e., Industrial and BeiGene go up and down completely randomly.

Pair Corralation between Industrial and BeiGene

Assuming the 90 days trading horizon Industrial is expected to generate 1.13 times less return on investment than BeiGene. But when comparing it to its historical volatility, Industrial and Commercial is 2.27 times less risky than BeiGene. It trades about 0.13 of its potential returns per unit of risk. BeiGene is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  14,652  in BeiGene on September 25, 2024 and sell it today you would earn a total of  1,448  from holding BeiGene or generate 9.88% return on investment over 90 days.

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

Industrial and Commercial  vs.  BeiGene

Industrial and Commercial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BeiGene

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Industrial and BeiGene

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

The idea behind Industrial and Commercial and BeiGene 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..