Correlation Between Danaher and Illumina

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

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

Diversification Opportunities for Danaher and Illumina

0.11

Correlation Coefficient

Danaher  Illumina

Average diversification

The 3 months correlation between Danaher and Illumina is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Danaher and Illumina in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illumina and Danaher 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 Danaher are associated (or correlated) with Illumina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illumina has no effect on the direction of Danaher i.e., Danaher and Illumina go up and down completely randomly.

Pair Corralation between Danaher and Illumina

Considering the 90-day investment horizon Danaher is expected to generate 0.79 times more return on investment than Illumina. However, Danaher is 1.27 times less risky than Illumina. It trades about 0.06 of its potential returns per unit of risk. Illumina is currently generating about -0.16 per unit of risk. If you would invest  24,753  in Danaher on January 25, 2024 and sell it today you would earn a total of  558.00  from holding Danaher or generate 2.25% return on investment over 90 days.

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

Danaher  vs.  Illumina

Danaher

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danaher are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Danaher may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Illumina

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Illumina 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 primary indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Danaher and Illumina

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

The idea behind Danaher and Illumina 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.