Correlation Between Incyte and Zai Lab

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

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

Diversification Opportunities for Incyte and Zai Lab

0.66

Correlation Coefficient

Incyte  Zai Lab

Poor diversification

The 3 months correlation between Incyte and Zai is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Incyte and Zai Lab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zai Lab and Incyte 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 Incyte are associated (or correlated) with Zai Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zai Lab has no effect on the direction of Incyte i.e., Incyte and Zai Lab go up and down completely randomly.

Pair Corralation between Incyte and Zai Lab

Given the investment horizon of 90 days Incyte is expected to under-perform the Zai Lab. But the stock apears to be less risky and, when comparing its historical volatility, Incyte is 2.64 times less risky than Zai Lab. The stock trades about -0.01 of its potential returns per unit of risk. The Zai Lab is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,288  in Zai Lab on September 5, 2024 and sell it today you would lose (272.00) from holding Zai Lab or give up 8.27% of portfolio value over 90 days.

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

Incyte  vs.  Zai Lab

Incyte

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Incyte are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Incyte showed solid returns over the last few months and may actually be approaching a breakup point.

Zai Lab

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Incyte and Zai Lab

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

The idea behind Incyte and Zai Lab 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.