Correlation Between Seagen and WuXi Biologics

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

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

Diversification Opportunities for Seagen and WuXi Biologics

-0.58

Correlation Coefficient

Seagen  WuXi Biologics

Excellent diversification

The 3 months correlation between Seagen and WuXi is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Seagen Inc and WuXi Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi Biologics and Seagen 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 Seagen Inc 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 Seagen i.e., Seagen and WuXi Biologics go up and down completely randomly.

Pair Corralation between Seagen and WuXi Biologics

Given the investment horizon of 90 days Seagen Inc is expected to generate 0.52 times more return on investment than WuXi Biologics. However, Seagen Inc is 1.94 times less risky than WuXi Biologics. It trades about 0.07 of its potential returns per unit of risk. WuXi Biologics is currently generating about -0.05 per unit of risk. If you would invest  13,023  in Seagen Inc on January 18, 2024 and sell it today you would earn a total of  9,851  from holding Seagen Inc or generate 75.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	83.03%
Values	Daily Returns

Seagen Inc  vs.  WuXi Biologics

Seagen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seagen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Seagen is not utilizing all of its potentials. The recent stock price disarray, 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. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Seagen and WuXi Biologics

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

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.