Can any of the company-specific risk be diversified away by investing in both Biogen and Amgen 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 Biogen and Amgen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Biogen Inc and Amgen Inc, you can compare the effects of market volatilities on Biogen and Amgen 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 Biogen with a short position of Amgen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biogen and Amgen.
Diversification Opportunities for Biogen and Amgen
The 3 months correlation between Biogen and Amgen is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Biogen Inc and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen Inc and Biogen 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 Biogen Inc are associated (or correlated) with Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of Biogen i.e., Biogen and Amgen go up and down completely randomly.
Assuming the 90 days horizon Biogen Inc is expected to generate 1.04 times more return on investment than Amgen. However, Biogen is 1.04 times more volatile than Amgen Inc. It trades about 0.11 of its potential returns per unit of risk. Amgen Inc is currently generating about 0.09 per unit of risk. If you would invest 20,460 in Biogen Inc on March 6, 2024 and sell it today you would earn a total of 690.00 from holding Biogen Inc or generate 3.37% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Biogen Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Biogen may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in Amgen Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amgen may actually be approaching a critical reversion point that can send shares even higher in July 2024.