Correlation Between Incyte and Shenzhen Investment

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

By analyzing existing cross correlation between Incyte and Shenzhen Investment Bay, you can compare the effects of market volatilities on Incyte and Shenzhen Investment 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 Shenzhen Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Incyte and Shenzhen Investment.

Diversification Opportunities for Incyte and Shenzhen Investment

0.7

Correlation Coefficient

Incyte  Shenzhen Investment

Poor diversification

The 3 months correlation between Incyte and Shenzhen is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Shenzhen Investment Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Investment Bay 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 Shenzhen Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Investment Bay has no effect on the direction of Incyte i.e., Incyte and Shenzhen Investment go up and down completely randomly.

Pair Corralation between Incyte and Shenzhen Investment

Given the investment horizon of 90 days Incyte is expected to generate 3.75 times less return on investment than Shenzhen Investment. But when comparing it to its historical volatility, Incyte is 4.16 times less risky than Shenzhen Investment. It trades about 0.1 of its potential returns per unit of risk. Shenzhen Investment Bay is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  201.00  in Shenzhen Investment Bay on September 5, 2024 and sell it today you would earn a total of  61.00  from holding Shenzhen Investment Bay or generate 30.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Incyte  vs.  Shenzhen Investment Bay

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.

Shenzhen Investment Bay

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Investment Bay are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Shenzhen Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Incyte and Shenzhen Investment

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

The idea behind Incyte and Shenzhen Investment Bay 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .