Correlation Between Summit Therapeutics and ICON PLC

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

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

Diversification Opportunities for Summit Therapeutics and ICON PLC

Excellent diversification

The 3 months correlation between Summit and ICON is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Summit Therapeutics PLC and ICON PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICON PLC and Summit 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 Summit Therapeutics PLC are associated (or correlated) with ICON PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICON PLC has no effect on the direction of Summit Therapeutics i.e., Summit Therapeutics and ICON PLC go up and down completely randomly.

Pair Corralation between Summit Therapeutics and ICON PLC

Given the investment horizon of 90 days Summit Therapeutics PLC is expected to generate 5.0 times more return on investment than ICON PLC. However, Summit Therapeutics is 5.0 times more volatile than ICON PLC. It trades about 0.02 of its potential returns per unit of risk. ICON PLC is currently generating about 0.01 per unit of risk. If you would invest  518.00  in Summit Therapeutics PLC on July 2, 2023 and sell it today you would lose (331.00) from holding Summit Therapeutics PLC or give up 63.9% of portfolio value over 90 days.

Summit Therapeutics PLC  vs.  ICON PLC

Summit Therapeutics PLC

Summit Performance

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Over the last 90 days Summit Therapeutics PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in October 2023. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

ICON PLC

ICON Performance

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Compared to the overall equity markets, risk-adjusted returns on investments in ICON PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable essential indicators, ICON PLC is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Summit Therapeutics and ICON PLC

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

The idea behind Summit Therapeutics PLC and ICON 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.

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 the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.