Can any of the company-specific risk be diversified away by investing in both ESSA Pharma and BioCryst Pharmaceuticals 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 ESSA Pharma and BioCryst Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESSA Pharma and BioCryst Pharmaceuticals, you can compare the effects of market volatilities on ESSA Pharma and BioCryst Pharmaceuticals 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 ESSA Pharma with a short position of BioCryst Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Pharma and BioCryst Pharmaceuticals.
Diversification Opportunities for ESSA Pharma and BioCryst Pharmaceuticals
The 3 months correlation between ESSA and BioCryst is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and BioCryst Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BioCryst Pharmaceuticals and ESSA Pharma 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 ESSA Pharma are associated (or correlated) with BioCryst Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BioCryst Pharmaceuticals has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and BioCryst Pharmaceuticals go up and down completely randomly.
Pair Corralation between ESSA Pharma and BioCryst Pharmaceuticals
Given the investment horizon of 90 days ESSA Pharma is expected to under-perform the BioCryst Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, ESSA Pharma is 1.34 times less risky than BioCryst Pharmaceuticals. The stock trades about -0.15 of its potential returns per unit of risk. The BioCryst Pharmaceuticals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 521.00 in BioCryst Pharmaceuticals on March 6, 2024 and sell it today you would earn a total of 158.00 from holding BioCryst Pharmaceuticals or generate 30.33% return on investment over 90 days.
Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in BioCryst Pharmaceuticals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, BioCryst Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.