Correlation Between Zai Lab and Vaxcyte

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

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

Diversification Opportunities for Zai Lab and Vaxcyte

0.72

Correlation Coefficient

Zai Lab  Vaxcyte

Poor diversification

The 3 months correlation between Zai and Vaxcyte is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Zai Lab and Vaxcyte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaxcyte and Zai Lab 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 Zai Lab are associated (or correlated) with Vaxcyte. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaxcyte has no effect on the direction of Zai Lab i.e., Zai Lab and Vaxcyte go up and down completely randomly.

Pair Corralation between Zai Lab and Vaxcyte

Given the investment horizon of 90 days Zai Lab is expected to generate 0.77 times more return on investment than Vaxcyte. However, Zai Lab is 1.3 times less risky than Vaxcyte. It trades about 0.24 of its potential returns per unit of risk. Vaxcyte is currently generating about 0.12 per unit of risk. If you would invest  1,879  in Zai Lab on July 29, 2024 and sell it today you would earn a total of  1,358  from holding Zai Lab or generate 72.27% return on investment over 90 days.

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

Zai Lab  vs.  Vaxcyte

Zai Lab

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 18 (%) 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.

Vaxcyte

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vaxcyte are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Vaxcyte showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Zai Lab and Vaxcyte

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

The idea behind Zai Lab and Vaxcyte 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.