Correlation Between BeiGene and WuXi Biologics

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

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

Diversification Opportunities for BeiGene and WuXi Biologics

0.19

Correlation Coefficient

BeiGene  WuXi Biologics

Average diversification

The 3 months correlation between BeiGene and WuXi is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding BeiGene and WuXi Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Biologics and BeiGene 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 BeiGene 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 BeiGene i.e., BeiGene and WuXi Biologics go up and down completely randomly.

Pair Corralation between BeiGene and WuXi Biologics

Given the investment horizon of 90 days BeiGene is expected to under-perform the WuXi Biologics. But the stock apears to be less risky and, when comparing its historical volatility, BeiGene is 1.15 times less risky than WuXi Biologics. The stock trades about -0.46 of its potential returns per unit of risk. The WuXi Biologics is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  350.00  in WuXi Biologics on January 19, 2024 and sell it today you would lose (17.00) from holding WuXi Biologics or give up 4.86% of portfolio value over 90 days.

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

BeiGene  vs.  WuXi Biologics

BeiGene

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BeiGene 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 basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BeiGene and WuXi Biologics

The main advantage of trading using opposite BeiGene and WuXi Biologics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BeiGene 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 BeiGene 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.