Correlation Between Legend Biotech and Incyte

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

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

Diversification Opportunities for Legend Biotech and Incyte

-0.67

Correlation Coefficient

Legend Biotech  Incyte

Excellent diversification

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

Pair Corralation between Legend Biotech and Incyte

Given the investment horizon of 90 days Legend Biotech Corp is expected to under-perform the Incyte. In addition to that, Legend Biotech is 1.32 times more volatile than Incyte. It trades about -0.12 of its total potential returns per unit of risk. Incyte is currently generating about 0.09 per unit of volatility. 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

Legend Biotech Corp  vs.  Incyte

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.

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.

Pair Trading with Legend Biotech and Incyte

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

The idea behind Legend Biotech Corp and Incyte 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.