Correlation Between Analog Devices and Nuvalent

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

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

Diversification Opportunities for Analog Devices and Nuvalent

0.57

Correlation Coefficient

Analog Devices  Nuvalent

Very weak diversification

The 3 months correlation between Analog and Nuvalent is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent and Analog Devices 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 Analog Devices are associated (or correlated) with Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Analog Devices i.e., Analog Devices and Nuvalent go up and down completely randomly.

Pair Corralation between Analog Devices and Nuvalent

Considering the 90-day investment horizon Analog Devices is expected to generate 3.55 times less return on investment than Nuvalent. But when comparing it to its historical volatility, Analog Devices is 2.02 times less risky than Nuvalent. It trades about 0.04 of its potential returns per unit of risk. Nuvalent is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,978  in Nuvalent on September 20, 2024 and sell it today you would earn a total of  5,480  from holding Nuvalent or generate 184.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Analog Devices  vs.  Nuvalent

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Analog Devices and Nuvalent

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

The idea behind Analog Devices and Nuvalent 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.