Can any of the company-specific risk be diversified away by investing in both Vaccitech PLC and Vertex 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 Vaccitech PLC and Vertex Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vaccitech PLC ADR and Vertex Pharmaceuticals, you can compare the effects of market volatilities on Vaccitech PLC and Vertex 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 Vaccitech PLC with a short position of Vertex Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vaccitech PLC and Vertex Pharmaceuticals.
Diversification Opportunities for Vaccitech PLC and Vertex Pharmaceuticals
The 3 months correlation between Vaccitech and Vertex is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Vaccitech PLC ADR and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and Vaccitech PLC 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 Vaccitech PLC ADR are associated (or correlated) with Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Vaccitech PLC i.e., Vaccitech PLC and Vertex Pharmaceuticals go up and down completely randomly.
Pair Corralation between Vaccitech PLC and Vertex Pharmaceuticals
Given the investment horizon of 90 days Vaccitech PLC ADR is expected to generate 10.52 times more return on investment than Vertex Pharmaceuticals. However, Vaccitech PLC is 10.52 times more volatile than Vertex Pharmaceuticals. It trades about 0.21 of its potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about 0.03 per unit of risk. If you would invest 181.00 in Vaccitech PLC ADR on September 9, 2023 and sell it today you would earn a total of 310.00 from holding Vaccitech PLC ADR or generate 171.27% return on investment over 90 days.
Over the last 90 days Vaccitech PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unfluctuating fundamental indicators, Vaccitech PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Vertex Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Vaccitech PLC and Vertex Pharmaceuticals Volatility Contrast
Predicted Return Density
Pair Trading with Vaccitech PLC and Vertex Pharmaceuticals
The main advantage of trading using opposite Vaccitech PLC and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vaccitech PLC position performs unexpectedly, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals will offset losses from the drop in Vertex Pharmaceuticals' long position.
The idea behind Vaccitech PLC ADR and Vertex Pharmaceuticals 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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