Correlation Between Castle Biosciences and Twist Bioscience

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

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

Diversification Opportunities for Castle Biosciences and Twist Bioscience

0.67

Correlation Coefficient

Castle Biosciences  Twist Bioscience

Poor diversification

The 3 months correlation between Castle and Twist is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Castle Biosciences and Twist Bioscience Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twist Bioscience Corp 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 Twist Bioscience. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twist Bioscience Corp has no effect on the direction of Castle Biosciences i.e., Castle Biosciences and Twist Bioscience go up and down completely randomly.

Pair Corralation between Castle Biosciences and Twist Bioscience

Given the investment horizon of 90 days Castle Biosciences is expected to generate 1.63 times less return on investment than Twist Bioscience. But when comparing it to its historical volatility, Castle Biosciences is 2.2 times less risky than Twist Bioscience. It trades about 0.24 of its potential returns per unit of risk. Twist Bioscience Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,297  in Twist Bioscience Corp on February 6, 2024 and sell it today you would earn a total of  824.00  from holding Twist Bioscience Corp or generate 24.99% return on investment over 90 days.

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

Castle Biosciences  vs.  Twist Bioscience Corp

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.

Twist Bioscience Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Twist Bioscience Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Twist Bioscience unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Castle Biosciences and Twist Bioscience

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

The idea behind Castle Biosciences and Twist Bioscience Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.