Correlation Between Incyte and Legend Biotech

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

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

Diversification Opportunities for Incyte and Legend Biotech

-0.67

Correlation Coefficient

Incyte  Legend Biotech

Excellent diversification

The 3 months correlation between Incyte and Legend is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Legend Biotech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Biotech Corp and Incyte 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 Incyte are associated (or correlated) with Legend Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Biotech Corp has no effect on the direction of Incyte i.e., Incyte and Legend Biotech go up and down completely randomly.

Pair Corralation between Incyte and Legend Biotech

Given the investment horizon of 90 days Incyte is expected to generate 0.76 times more return on investment than Legend Biotech. However, Incyte is 1.32 times less risky than Legend Biotech. It trades about 0.09 of its potential returns per unit of risk. Legend Biotech Corp is currently generating about -0.12 per unit of risk. If you would invest  6,433  in Incyte on September 4, 2024 and sell it today you would earn a total of  891.00  from holding Incyte or generate 13.85% return on investment over 90 days.

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

Incyte  vs.  Legend Biotech Corp

Incyte

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incyte are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Incyte showed solid returns over the last few months and may actually be approaching a breakup point.

Legend Biotech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legend Biotech Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Incyte and Legend Biotech

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

The idea behind Incyte and Legend Biotech Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.