Correlation Between Castle Biosciences and Zai Lab

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

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

Diversification Opportunities for Castle Biosciences and Zai Lab

0.19

Correlation Coefficient

Castle Biosciences  Zai Lab

Average diversification

The 3 months correlation between Castle and Zai is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Castle Biosciences and Zai Lab in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zai Lab and Castle Biosciences 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 Castle Biosciences are associated (or correlated) with Zai Lab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zai Lab has no effect on the direction of Castle Biosciences i.e., Castle Biosciences and Zai Lab go up and down completely randomly.

Pair Corralation between Castle Biosciences and Zai Lab

Given the investment horizon of 90 days Castle Biosciences is expected to generate 1.12 times more return on investment than Zai Lab. However, Castle Biosciences is 1.12 times more volatile than Zai Lab. It trades about 0.07 of its potential returns per unit of risk. Zai Lab is currently generating about 0.08 per unit of risk. If you would invest  1,704  in Castle Biosciences on May 10, 2025 and sell it today you would earn a total of  272.00  from holding Castle Biosciences or generate 15.96% return on investment over 90 days.

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

Castle Biosciences  vs.  Zai Lab

Castle Biosciences

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Castle Biosciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Castle Biosciences disclosed solid returns over the last few months and may actually be approaching a breakup point.

Zai Lab

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Zai Lab are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zai Lab sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Castle Biosciences and Zai Lab

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

The idea behind Castle Biosciences and Zai Lab 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.