Correlation Between Revolution Medicines and Equillium

Can any of the company-specific risk be diversified away by investing in both Revolution Medicines and Equillium 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 Revolution Medicines and Equillium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Revolution Medicines and Equillium, you can compare the effects of market volatilities on Revolution Medicines and Equillium 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 Revolution Medicines with a short position of Equillium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Revolution Medicines and Equillium.

Diversification Opportunities for Revolution Medicines and Equillium

-0.85

Correlation Coefficient

Revolution Medicines  Equillium

Pay attention - limited upside

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

Pair Corralation between Revolution Medicines and Equillium

Given the investment horizon of 90 days Revolution Medicines is expected to generate 0.45 times more return on investment than Equillium. However, Revolution Medicines is 2.2 times less risky than Equillium. It trades about 0.16 of its potential returns per unit of risk. Equillium is currently generating about -0.08 per unit of risk. If you would invest  2,994  in Revolution Medicines on March 5, 2024 and sell it today you would earn a total of  839.00  from holding Revolution Medicines or generate 28.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Revolution Medicines  vs.  Equillium

Revolution Medicines

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Revolution Medicines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Revolution Medicines exhibited solid returns over the last few months and may actually be approaching a breakup point.

Equillium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equillium has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Revolution Medicines and Equillium

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

The idea behind Revolution Medicines and Equillium 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.