Correlation Between Laboratory and ICON PLC

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

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

Diversification Opportunities for Laboratory and ICON PLC

0.48

Correlation Coefficient

Laboratory ICON PLC

Very weak diversification

The 3 months correlation between Laboratory and ICON is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Laboratory Of and ICON PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICON PLC and Laboratory 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 Laboratory are associated (or correlated) with ICON PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICON PLC has no effect on the direction of Laboratory i.e., Laboratory and ICON PLC go up and down completely randomly.

Pair Corralation between Laboratory and ICON PLC

Allowing for the 90-day total investment horizon Laboratory is expected to under-perform the ICON PLC. But the stock apears to be less risky and, when comparing its historical volatility, Laboratory is 1.44 times less risky than ICON PLC. The stock trades about -0.06 of its potential returns per unit of risk. The ICON PLC is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  21,544  in ICON PLC on February 28, 2023 and sell it today you would lose (1,175)  from holding ICON PLC or give up 5.45% of portfolio value over 90 days.

Laboratory Of  vs.  ICON PLC

Laboratory

Laboratory Performance

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Over the last 90 days Laboratory has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

ICON PLC

ICON Performance

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Over the last 90 days ICON PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Laboratory and ICON PLC

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

The idea behind Laboratory and ICON PLC 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.