Correlation Between Berkeley Lights and Bridgebio Pharma

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Can any of the company-specific risk be diversified away by investing in both Berkeley Lights and Bridgebio Pharma 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 Berkeley Lights and Bridgebio Pharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Berkeley Lights and Bridgebio Pharma, you can compare the effects of market volatilities on Berkeley Lights and Bridgebio Pharma 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 Berkeley Lights with a short position of Bridgebio Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkeley Lights and Bridgebio Pharma.

Diversification Opportunities for Berkeley Lights and Bridgebio Pharma

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Berkeley and Bridgebio is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Berkeley Lights and Bridgebio Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgebio Pharma and Berkeley Lights 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 Berkeley Lights are associated (or correlated) with Bridgebio Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgebio Pharma has no effect on the direction of Berkeley Lights i.e., Berkeley Lights and Bridgebio Pharma go up and down completely randomly.

Pair Corralation between Berkeley Lights and Bridgebio Pharma

Considering the 90-day investment horizon Berkeley Lights is expected to under-perform the Bridgebio Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Berkeley Lights is 1.06 times less risky than Bridgebio Pharma. The stock trades about -0.1 of its potential returns per unit of risk. The Bridgebio Pharma is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,568  in Bridgebio Pharma on April 8, 2022 and sell it today you would lose (5,508)  from holding Bridgebio Pharma or give up 83.86% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Berkeley Lights  vs.  Bridgebio Pharma

 Performance (%) 
      Timeline 
Berkeley Lights 
Berkeley Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Berkeley Lights are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Berkeley Lights may actually be approaching a critical reversion point that can send shares even higher in August 2022.

Berkeley Price Channel

Bridgebio Pharma 
Bridgebio Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bridgebio Pharma are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward indicators, Bridgebio Pharma disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bridgebio Price Channel

Berkeley Lights and Bridgebio Pharma Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Berkeley Lights and Bridgebio Pharma

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

Bridgebio Pharma

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Bridgebio Pharma as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Bridgebio Pharma's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Bridgebio Pharma's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Bridgebio Pharma.
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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