Correlation Between Sotera Health and Castle Biosciences

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

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

Diversification Opportunities for Sotera Health and Castle Biosciences

0.17

Correlation Coefficient

Sotera Health  Castle Biosciences

Average diversification

The 3 months correlation between Sotera and Castle is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Sotera Health Co and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Sotera Health 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 Sotera Health Co are associated (or correlated) with Castle Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castle Biosciences has no effect on the direction of Sotera Health i.e., Sotera Health and Castle Biosciences go up and down completely randomly.

Pair Corralation between Sotera Health and Castle Biosciences

Considering the 90-day investment horizon Sotera Health Co is expected to under-perform the Castle Biosciences. But the stock apears to be less risky and, when comparing its historical volatility, Sotera Health Co is 1.32 times less risky than Castle Biosciences. The stock trades about -0.09 of its potential returns per unit of risk. The Castle Biosciences is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,918  in Castle Biosciences on September 2, 2024 and sell it today you would earn a total of  110.00  from holding Castle Biosciences or generate 3.77% return on investment over 90 days.

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

Sotera Health Co  vs.  Castle Biosciences

Sotera Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotera Health Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Castle Biosciences

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Castle Biosciences are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Castle Biosciences may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sotera Health and Castle Biosciences

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

The idea behind Sotera Health Co and Castle Biosciences 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.