Correlation Between Gilead Sciences and Castle Biosciences

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

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

Diversification Opportunities for Gilead Sciences and Castle Biosciences

-0.4

Correlation Coefficient

Gilead Sciences  Castle Biosciences

Very good diversification

The 3 months correlation between Gilead and Castle is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Gilead Sciences and Castle Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castle Biosciences and Gilead Sciences 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 Gilead Sciences 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 Gilead Sciences i.e., Gilead Sciences and Castle Biosciences go up and down completely randomly.

Pair Corralation between Gilead Sciences and Castle Biosciences

Given the investment horizon of 90 days Gilead Sciences is expected to under-perform the Castle Biosciences. But the stock apears to be less risky and, when comparing its historical volatility, Gilead Sciences is 2.27 times less risky than Castle Biosciences. The stock trades about -0.25 of its potential returns per unit of risk. The Castle Biosciences is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,225  in Castle Biosciences on March 1, 2024 and sell it today you would earn a total of  226.00  from holding Castle Biosciences or generate 10.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.67%
Values	Daily Returns

Gilead Sciences  vs.  Castle Biosciences

Gilead Sciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gilead Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Castle Biosciences

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Gilead Sciences and Castle Biosciences

The main advantage of trading using opposite Gilead Sciences and Castle Biosciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gilead Sciences 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 Gilead Sciences 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.