Correlation Between Forte Biosciences and BWV

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

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

Diversification Opportunities for Forte Biosciences and BWV

0.26

Correlation Coefficient

Forte Biosciences  BWV

Modest diversification

The 3 months correlation between Forte and BWV is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Forte Biosciences and BWV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BWV and Forte Biosciences 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 Forte Biosciences are associated (or correlated) with BWV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BWV has no effect on the direction of Forte Biosciences i.e., Forte Biosciences and BWV go up and down completely randomly.

Pair Corralation between Forte Biosciences and BWV

Given the investment horizon of 90 days Forte Biosciences is expected to generate 1.1 times more return on investment than BWV. However, Forte Biosciences is 1.1 times more volatile than BWV. It trades about 0.02 of its potential returns per unit of risk. BWV is currently generating about 0.02 per unit of risk. If you would invest  2,475  in Forte Biosciences on September 4, 2024 and sell it today you would lose (129.00) from holding Forte Biosciences or give up 5.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	30.71%
Values	Daily Returns

Forte Biosciences  vs.  BWV

Forte Biosciences

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Forte Biosciences are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Forte Biosciences showed solid returns over the last few months and may actually be approaching a breakup point.

BWV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BWV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, BWV is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Forte Biosciences and BWV

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

The idea behind Forte Biosciences and BWV 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.