Correlation Between Protagonist Therapeutics and Verona Pharma

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

Diversification Opportunities for Protagonist Therapeutics and Verona Pharma

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Protagonist and Verona is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Protagonist Therapeutics and Verona Pharma PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verona Pharma PLC and Protagonist 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 Protagonist Therapeutics are associated (or correlated) with Verona Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verona Pharma PLC has no effect on the direction of Protagonist Therapeutics i.e., Protagonist Therapeutics and Verona Pharma go up and down completely randomly.

Pair Corralation between Protagonist Therapeutics and Verona Pharma

Given the investment horizon of 90 days Protagonist Therapeutics is expected to generate 4.35 times less return on investment than Verona Pharma. But when comparing it to its historical volatility, Protagonist Therapeutics is 1.91 times less risky than Verona Pharma. It trades about 0.19 of its potential returns per unit of risk. Verona Pharma PLC is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Verona Pharma PLC on April 22, 2024 and sell it today you would earn a total of  795.00  from holding Verona Pharma PLC or generate 53.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Protagonist Therapeutics  vs.  Verona Pharma PLC

 Performance 
       Timeline  
Protagonist Therapeutics 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Protagonist Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Protagonist Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.
Verona Pharma PLC 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Verona Pharma PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verona Pharma sustained solid returns over the last few months and may actually be approaching a breakup point.

Protagonist Therapeutics and Verona Pharma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Protagonist Therapeutics and Verona Pharma

The main advantage of trading using opposite Protagonist Therapeutics and Verona Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Protagonist Therapeutics position performs unexpectedly, Verona 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 Verona Pharma will offset losses from the drop in Verona Pharma's long position.
The idea behind Protagonist Therapeutics and Verona Pharma PLC 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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