Correlation Between Zai Lab and Biomarin Pharmaceutical

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

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

Diversification Opportunities for Zai Lab and Biomarin Pharmaceutical

-0.56

Correlation Coefficient

Zai Lab  Biomarin Pharmaceutical

Excellent diversification

The 3 months correlation between Zai and Biomarin is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Zai Lab and Biomarin Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomarin Pharmaceutical and Zai Lab 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 Zai Lab are associated (or correlated) with Biomarin Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomarin Pharmaceutical has no effect on the direction of Zai Lab i.e., Zai Lab and Biomarin Pharmaceutical go up and down completely randomly.

Pair Corralation between Zai Lab and Biomarin Pharmaceutical

Given the investment horizon of 90 days Zai Lab is expected to generate 1.57 times more return on investment than Biomarin Pharmaceutical. However, Zai Lab is 1.57 times more volatile than Biomarin Pharmaceutical. It trades about 0.13 of its potential returns per unit of risk. Biomarin Pharmaceutical is currently generating about -0.13 per unit of risk. If you would invest  2,061  in Zai Lab on September 12, 2024 and sell it today you would earn a total of  712.00  from holding Zai Lab or generate 34.55% return on investment over 90 days.

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

Zai Lab  vs.  Biomarin Pharmaceutical

Zai Lab

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Biomarin Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomarin Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic 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.

Pair Trading with Zai Lab and Biomarin Pharmaceutical

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

The idea behind Zai Lab and Biomarin Pharmaceutical 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.