Correlation Between Purple Biotech and WuXi Biologics

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

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

Diversification Opportunities for Purple Biotech and WuXi Biologics

0.73

Correlation Coefficient

Purple Biotech  WuXi Biologics

Poor diversification

The 3 months correlation between Purple and WuXi is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Purple Biotech and WuXi Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Biologics and Purple Biotech 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 Purple Biotech are associated (or correlated) with WuXi Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi Biologics has no effect on the direction of Purple Biotech i.e., Purple Biotech and WuXi Biologics go up and down completely randomly.

Pair Corralation between Purple Biotech and WuXi Biologics

Given the investment horizon of 90 days Purple Biotech is expected to under-perform the WuXi Biologics. In addition to that, Purple Biotech is 2.04 times more volatile than WuXi Biologics. It trades about -0.04 of its total potential returns per unit of risk. WuXi Biologics is currently generating about 0.19 per unit of volatility. If you would invest  345.00  in WuXi Biologics on February 12, 2024 and sell it today you would earn a total of  51.00  from holding WuXi Biologics or generate 14.78% return on investment over 90 days.

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

Purple Biotech  vs.  WuXi Biologics

Purple Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Purple Biotech 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 fundamental drivers remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

WuXi Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WuXi Biologics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, WuXi Biologics is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Purple Biotech and WuXi Biologics

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

The idea behind Purple Biotech and WuXi Biologics 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.