Correlation Between American Rare and Centessa Pharmaceuticals

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

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

Diversification Opportunities for American Rare and Centessa Pharmaceuticals

0.25

Correlation Coefficient

American Rare  Centessa Pharmaceuticals

Modest diversification

The 3 months correlation between American and Centessa is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding American Rare Earths and Centessa Pharmaceuticals PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centessa Pharmaceuticals and American Rare 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 American Rare Earths are associated (or correlated) with Centessa Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centessa Pharmaceuticals has no effect on the direction of American Rare i.e., American Rare and Centessa Pharmaceuticals go up and down completely randomly.

Pair Corralation between American Rare and Centessa Pharmaceuticals

Assuming the 90 days horizon American Rare Earths is expected to generate about the same return on investment as Centessa Pharmaceuticals PLC. But, American Rare Earths is 1.35 times less risky than Centessa Pharmaceuticals. It trades about -0.03 of its potential returns per unit of risk. Centessa Pharmaceuticals PLC is currently generating about -0.02 per unit of risk. If you would invest  1,695  in Centessa Pharmaceuticals PLC on December 2, 2024 and sell it today you would lose (140.00) from holding Centessa Pharmaceuticals PLC or give up 8.26% of portfolio value over 90 days.

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

American Rare Earths  vs.  Centessa Pharmaceuticals PLC

American Rare Earths

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Rare Earths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, American Rare is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Centessa Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Centessa Pharmaceuticals PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Centessa Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Rare and Centessa Pharmaceuticals

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

The idea behind American Rare Earths and Centessa Pharmaceuticals 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.