Correlation Between CSL and WuXi Biologics

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

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

Diversification Opportunities for CSL and WuXi Biologics

0.56

Correlation Coefficient

CSL  WuXi Biologics

Very weak diversification

The 3 months correlation between CSL and WuXi is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding CSL and WuXi Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Biologics and CSL 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 CSL 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 CSL i.e., CSL and WuXi Biologics go up and down completely randomly.

Pair Corralation between CSL and WuXi Biologics

Assuming the 90 days horizon CSL is expected to generate 0.3 times more return on investment than WuXi Biologics. However, CSL is 3.38 times less risky than WuXi Biologics. It trades about -0.09 of its potential returns per unit of risk. WuXi Biologics is currently generating about -0.05 per unit of risk. If you would invest  9,231  in CSL on January 26, 2024 and sell it today you would lose (221.00) from holding CSL or give up 2.39% of portfolio value over 90 days.

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

CSL  vs.  WuXi Biologics

CSL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, CSL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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. Despite weak performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CSL and WuXi Biologics

The main advantage of trading using opposite CSL and WuXi Biologics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSL 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 CSL 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.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.