Correlation Between Castle Biosciences and Illumina

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

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

Diversification Opportunities for Castle Biosciences and Illumina

0.59

Correlation Coefficient

Castle Biosciences  Illumina

Very weak diversification

The 3 months correlation between Castle and Illumina is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Castle Biosciences and Illumina in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illumina and Castle Biosciences 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 Castle Biosciences are associated (or correlated) with Illumina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illumina has no effect on the direction of Castle Biosciences i.e., Castle Biosciences and Illumina go up and down completely randomly.

Pair Corralation between Castle Biosciences and Illumina

Given the investment horizon of 90 days Castle Biosciences is expected to generate 1.43 times more return on investment than Illumina. However, Castle Biosciences is 1.43 times more volatile than Illumina. It trades about 0.25 of its potential returns per unit of risk. Illumina is currently generating about -0.2 per unit of risk. If you would invest  2,086  in Castle Biosciences on February 6, 2024 and sell it today you would earn a total of  355.00  from holding Castle Biosciences or generate 17.02% return on investment over 90 days.

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

Castle Biosciences  vs.  Illumina

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 fragile basic indicators, Castle Biosciences may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Illumina

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Illumina 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 primary indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Castle Biosciences and Illumina

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

The idea behind Castle Biosciences and Illumina 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.