Correlation Between Legend BiotechCorp and Guangdong Investment

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

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

Diversification Opportunities for Legend BiotechCorp and Guangdong Investment

0.36

Correlation Coefficient

Legend BiotechCorp  Guangdong Investment

Weak diversification

The 3 months correlation between Legend and Guangdong is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Legend BiotechCorp and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and Legend BiotechCorp 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 Legend BiotechCorp are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of Legend BiotechCorp i.e., Legend BiotechCorp and Guangdong Investment go up and down completely randomly.

Pair Corralation between Legend BiotechCorp and Guangdong Investment

Given the investment horizon of 90 days Legend BiotechCorp is expected to generate 0.71 times more return on investment than Guangdong Investment. However, Legend BiotechCorp is 1.41 times less risky than Guangdong Investment. It trades about -0.13 of its potential returns per unit of risk. Guangdong Investment Limited is currently generating about -0.19 per unit of risk. If you would invest  5,655  in Legend BiotechCorp on January 26, 2024 and sell it today you would lose (1,138) from holding Legend BiotechCorp or give up 20.12% of portfolio value over 90 days.

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

Legend BiotechCorp  vs.  Guangdong Investment Limited

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.

Guangdong Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators 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 Legend BiotechCorp and Guangdong Investment

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

The idea behind Legend BiotechCorp and Guangdong Investment Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.