Correlation Between Cerner and Babylon Hldgs

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

Diversification Opportunities for Cerner and Babylon Hldgs

-0.86
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Cerner and Babylon is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Cerner Corp. and Babylon Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babylon Hldgs and Cerner 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 Cerner are associated (or correlated) with Babylon Hldgs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babylon Hldgs has no effect on the direction of Cerner i.e., Cerner and Babylon Hldgs go up and down completely randomly.

Pair Corralation between Cerner and Babylon Hldgs

Given the investment horizon of 90 days Cerner is expected to generate 0.23 times more return on investment than Babylon Hldgs. However, Cerner is 4.27 times less risky than Babylon Hldgs. It trades about 0.06 of its potential returns per unit of risk. Babylon Hldgs is currently generating about -0.13 per unit of risk. If you would invest  7,334  in Cerner on July 8, 2022 and sell it today you would earn a total of  2,158  from holding Cerner or generate 29.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy92.29%
ValuesDaily Returns

Cerner Corp.  vs.  Babylon Hldgs

 Performance (%) 
       Timeline  
Cerner 
Cerner Performance
0 of 100
Over the last 90 days Cerner has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Cerner is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Babylon Hldgs 
Babylon Performance
0 of 100
Over the last 90 days Babylon Hldgs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in November 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Babylon Price Channel

Cerner and Babylon Hldgs Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Cerner and Babylon Hldgs

The main advantage of trading using opposite Cerner and Babylon Hldgs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cerner position performs unexpectedly, Babylon Hldgs 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 Babylon Hldgs will offset losses from the drop in Babylon Hldgs' long position.
Cerner vs. Amazon Inc
The idea behind Cerner and Babylon Hldgs 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.
Babylon Hldgs vs. Amazon Inc
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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