Correlation Between WuXi Biologics and Vertex Pharmaceuticals

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

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

Diversification Opportunities for WuXi Biologics and Vertex Pharmaceuticals

0.74

Correlation Coefficient

WuXi Biologics  Vertex Pharmaceuticals

Poor diversification

The 3 months correlation between WuXi and Vertex is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding WuXi Biologics and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and WuXi Biologics 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 WuXi Biologics 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 WuXi Biologics i.e., WuXi Biologics and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between WuXi Biologics and Vertex Pharmaceuticals

Assuming the 90 days horizon WuXi Biologics is expected to under-perform the Vertex Pharmaceuticals. In addition to that, WuXi Biologics is 2.83 times more volatile than Vertex Pharmaceuticals. It trades about -0.07 of its total potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about 0.05 per unit of volatility. If you would invest  31,640  in Vertex Pharmaceuticals on January 24, 2024 and sell it today you would earn a total of  8,352  from holding Vertex Pharmaceuticals or generate 26.4% return on investment over 90 days.

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

WuXi Biologics  vs.  Vertex Pharmaceuticals

WuXi Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WuXi Biologics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Vertex Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vertex Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with WuXi Biologics and Vertex Pharmaceuticals

The main advantage of trading using opposite WuXi Biologics and Vertex Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WuXi Biologics 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 WuXi Biologics 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.

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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.