Correlation Between Relay Therapeutics and HCW Biologics

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

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

Diversification Opportunities for Relay Therapeutics and HCW Biologics

0.01

Correlation Coefficient

Relay Therapeutics  HCW Biologics

Significant diversification

The 3 months correlation between Relay and HCW is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Relay Therapeutics and HCW Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCW Biologics and Relay Therapeutics 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 Relay Therapeutics are associated (or correlated) with HCW Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCW Biologics has no effect on the direction of Relay Therapeutics i.e., Relay Therapeutics and HCW Biologics go up and down completely randomly.

Pair Corralation between Relay Therapeutics and HCW Biologics

Given the investment horizon of 90 days Relay Therapeutics is expected to generate 2.44 times less return on investment than HCW Biologics. In addition to that, Relay Therapeutics is 1.05 times more volatile than HCW Biologics. It trades about 0.06 of its total potential returns per unit of risk. HCW Biologics is currently generating about 0.16 per unit of volatility. If you would invest  47.00  in HCW Biologics on June 24, 2024 and sell it today you would earn a total of  14.00  from holding HCW Biologics or generate 29.79% return on investment over 90 days.

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

Relay Therapeutics  vs.  HCW Biologics

Relay Therapeutics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Relay Therapeutics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Relay Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

HCW Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HCW Biologics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HCW Biologics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Relay Therapeutics and HCW Biologics

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

The idea behind Relay Therapeutics and HCW 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.