Can any of the company-specific risk be diversified away by investing in both Immatics and Entera Bio 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 Immatics and Entera Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Immatics NV and Entera Bio, you can compare the effects of market volatilities on Immatics and Entera Bio 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 Immatics with a short position of Entera Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Immatics and Entera Bio.
Diversification Opportunities for Immatics and Entera Bio
The 3 months correlation between Immatics and Entera is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Immatics NV and Entera Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entera Bio and Immatics 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 Immatics NV are associated (or correlated) with Entera Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entera Bio has no effect on the direction of Immatics i.e., Immatics and Entera Bio go up and down completely randomly.
Given the investment horizon of 90 days Immatics is expected to generate 1.38 times less return on investment than Entera Bio. But when comparing it to its historical volatility, Immatics NV is 1.61 times less risky than Entera Bio. It trades about 0.1 of its potential returns per unit of risk. Entera Bio is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 199.00 in Entera Bio on March 6, 2024 and sell it today you would earn a total of 31.00 from holding Entera Bio or generate 15.58% return on investment over 90 days.
Over the last 90 days Immatics NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Immatics is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Entera Bio are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Entera Bio showed solid returns over the last few months and may actually be approaching a breakup point.