Correlation Between Biomarin Pharmaceutical and Vanda Pharmaceuticals

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

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

Diversification Opportunities for Biomarin Pharmaceutical and Vanda Pharmaceuticals

0.34

Correlation Coefficient

Biomarin Pharmaceutical  Vanda Pharmaceuticals

Weak diversification

The 3 months correlation between Biomarin and Vanda is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Biomarin Pharmaceutical and Vanda Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanda Pharmaceuticals and Biomarin Pharmaceutical 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 Biomarin Pharmaceutical are associated (or correlated) with Vanda Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanda Pharmaceuticals has no effect on the direction of Biomarin Pharmaceutical i.e., Biomarin Pharmaceutical and Vanda Pharmaceuticals go up and down completely randomly.

Pair Corralation between Biomarin Pharmaceutical and Vanda Pharmaceuticals

Given the investment horizon of 90 days Biomarin Pharmaceutical is expected to under-perform the Vanda Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Biomarin Pharmaceutical is 1.01 times less risky than Vanda Pharmaceuticals. The stock trades about -0.19 of its potential returns per unit of risk. The Vanda Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  508.00  in Vanda Pharmaceuticals on August 31, 2024 and sell it today you would earn a total of  11.00  from holding Vanda Pharmaceuticals or generate 2.17% return on investment over 90 days.

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

Biomarin Pharmaceutical  vs.  Vanda Pharmaceuticals

Biomarin Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomarin Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Vanda Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanda Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Vanda 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 Biomarin Pharmaceutical and Vanda Pharmaceuticals

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

The idea behind Biomarin Pharmaceutical and Vanda 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.