Correlation Between Illumina and Waters

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

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

Diversification Opportunities for Illumina and Waters

0.6

Correlation Coefficient

Illumina  Waters

Poor diversification

The 3 months correlation between Illumina and Waters is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Illumina and Waters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waters and Illumina 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 Illumina are associated (or correlated) with Waters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waters has no effect on the direction of Illumina i.e., Illumina and Waters go up and down completely randomly.

Pair Corralation between Illumina and Waters

Given the investment horizon of 90 days Illumina is expected to generate 1.27 times less return on investment than Waters. But when comparing it to its historical volatility, Illumina is 1.28 times less risky than Waters. It trades about 0.08 of its potential returns per unit of risk. Waters is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  33,975  in Waters on September 1, 2024 and sell it today you would earn a total of  4,497  from holding Waters or generate 13.24% return on investment over 90 days.

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

Illumina  vs.  Waters

Illumina

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Illumina are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Illumina may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Waters

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waters are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Waters unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Illumina and Waters

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

The idea behind Illumina and Waters 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.