Correlation Between Waters and Castle Biosciences

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

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

Diversification Opportunities for Waters and Castle Biosciences

-0.04

Correlation Coefficient

Waters  Castle Biosciences

Good diversification

The 3 months correlation between Waters and Castle is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Waters and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Waters 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 Waters 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 Waters i.e., Waters and Castle Biosciences go up and down completely randomly.

Pair Corralation between Waters and Castle Biosciences

Considering the 90-day investment horizon Waters is expected to generate 0.83 times more return on investment than Castle Biosciences. However, Waters is 1.2 times less risky than Castle Biosciences. It trades about 0.05 of its potential returns per unit of risk. Castle Biosciences is currently generating about 0.02 per unit of risk. If you would invest  33,609  in Waters on September 21, 2024 and sell it today you would earn a total of  3,207  from holding Waters or generate 9.54% return on investment over 90 days.

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

Waters  vs.  Castle Biosciences

Waters

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waters are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Waters may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Castle Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Waters and Castle Biosciences

The main advantage of trading using opposite Waters and Castle Biosciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waters 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 Waters 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.