Correlation Between DermTech and Legend BiotechCorp

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

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

Diversification Opportunities for DermTech and Legend BiotechCorp

0.3

Correlation Coefficient

DermTech  Legend BiotechCorp

Weak diversification

The 3 months correlation between DermTech and Legend is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding DermTech and Legend BiotechCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend BiotechCorp and DermTech 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 DermTech are associated (or correlated) with Legend BiotechCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend BiotechCorp has no effect on the direction of DermTech i.e., DermTech and Legend BiotechCorp go up and down completely randomly.

Pair Corralation between DermTech and Legend BiotechCorp

Given the investment horizon of 90 days DermTech is expected to generate 2.03 times more return on investment than Legend BiotechCorp. However, DermTech is 2.03 times more volatile than Legend BiotechCorp. It trades about -0.04 of its potential returns per unit of risk. Legend BiotechCorp is currently generating about -0.48 per unit of risk. If you would invest  65.00  in DermTech on January 26, 2024 and sell it today you would lose (3.60) from holding DermTech or give up 5.54% of portfolio value over 90 days.

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

DermTech  vs.  Legend BiotechCorp

DermTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DermTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Legend BiotechCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legend BiotechCorp 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 technical and fundamental 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 DermTech and Legend BiotechCorp

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

The idea behind DermTech and Legend BiotechCorp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..