Correlation Between Wave Life and FibroGen

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Can any of the company-specific risk be diversified away by investing in both Wave Life and FibroGen 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 Wave Life and FibroGen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wave Life Sciences and FibroGen, you can compare the effects of market volatilities on Wave Life and FibroGen 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 Wave Life with a short position of FibroGen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wave Life and FibroGen.

Diversification Opportunities for Wave Life and FibroGen

0.06
  Correlation Coefficient

Significant diversification

The 3 months correlation between Wave and FibroGen is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Wave Life Sciences and FibroGen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FibroGen and Wave Life 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 Wave Life Sciences are associated (or correlated) with FibroGen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FibroGen has no effect on the direction of Wave Life i.e., Wave Life and FibroGen go up and down completely randomly.

Pair Corralation between Wave Life and FibroGen

Considering the 90-day investment horizon Wave Life Sciences is expected to generate 0.77 times more return on investment than FibroGen. However, Wave Life Sciences is 1.3 times less risky than FibroGen. It trades about 0.06 of its potential returns per unit of risk. FibroGen is currently generating about 0.01 per unit of risk. If you would invest  219.00  in Wave Life Sciences on December 30, 2023 and sell it today you would earn a total of  398.00  from holding Wave Life Sciences or generate 181.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Wave Life Sciences  vs.  FibroGen

 Performance 
       Timeline  
Wave Life Sciences 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Wave Life Sciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Wave Life exhibited solid returns over the last few months and may actually be approaching a breakup point.
FibroGen 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in FibroGen are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, FibroGen displayed solid returns over the last few months and may actually be approaching a breakup point.

Wave Life and FibroGen Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wave Life and FibroGen

The main advantage of trading using opposite Wave Life and FibroGen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wave Life position performs unexpectedly, FibroGen 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 FibroGen will offset losses from the drop in FibroGen's long position.
The idea behind Wave Life Sciences and FibroGen 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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