Correlation Between IDEXX Laboratories and Quest Diagnostics

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

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

Diversification Opportunities for IDEXX Laboratories and Quest Diagnostics

-0.62

Correlation Coefficient

IDEXX Laboratories  Quest Diagnostics

Excellent diversification

The 3 months correlation between IDEXX and Quest is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding IDEXX Laboratories and Quest Diagnostics Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quest Diagnostics and IDEXX Laboratories 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 IDEXX Laboratories are associated (or correlated) with Quest Diagnostics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quest Diagnostics has no effect on the direction of IDEXX Laboratories i.e., IDEXX Laboratories and Quest Diagnostics go up and down completely randomly.

Pair Corralation between IDEXX Laboratories and Quest Diagnostics

Given the investment horizon of 90 days IDEXX Laboratories is expected to under-perform the Quest Diagnostics. In addition to that, IDEXX Laboratories is 1.06 times more volatile than Quest Diagnostics Incorporated. It trades about -0.14 of its total potential returns per unit of risk. Quest Diagnostics Incorporated is currently generating about 0.14 per unit of volatility. If you would invest  13,004  in Quest Diagnostics Incorporated on February 8, 2024 and sell it today you would earn a total of  690.00  from holding Quest Diagnostics Incorporated or generate 5.31% return on investment over 90 days.

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

IDEXX Laboratories  vs.  Quest Diagnostics Incorporated

IDEXX Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDEXX Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Quest Diagnostics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Quest Diagnostics Incorporated are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Quest Diagnostics may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with IDEXX Laboratories and Quest Diagnostics

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

The idea behind IDEXX Laboratories and Quest Diagnostics Incorporated 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.