Correlation Between Tekla World and Tekla Life

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

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

Diversification Opportunities for Tekla World and Tekla Life

0.77

Correlation Coefficient

Tekla World  Tekla Life

Poor diversification

The 3 months correlation between Tekla and Tekla is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tekla World Healthcare and Tekla Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tekla Life Sciences and Tekla World 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 Tekla World Healthcare are associated (or correlated) with Tekla Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tekla Life Sciences has no effect on the direction of Tekla World i.e., Tekla World and Tekla Life go up and down completely randomly.

Pair Corralation between Tekla World and Tekla Life

Considering the 90-day investment horizon Tekla World is expected to generate 1.77 times less return on investment than Tekla Life. But when comparing it to its historical volatility, Tekla World Healthcare is 1.11 times less risky than Tekla Life. It trades about 0.07 of its potential returns per unit of risk. Tekla Life Sciences is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,073  in Tekla Life Sciences on August 31, 2024 and sell it today you would earn a total of  340.00  from holding Tekla Life Sciences or generate 31.69% return on investment over 90 days.

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

Tekla World Healthcare  vs.  Tekla Life Sciences

Tekla World Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tekla World Healthcare has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly stable technical indicators, Tekla World is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Tekla Life Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tekla Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Tekla Life is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tekla World and Tekla Life

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

The idea behind Tekla World Healthcare and Tekla Life Sciences 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.