Correlation Between Biomarin Pharmaceutical and Verastem

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

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

Diversification Opportunities for Biomarin Pharmaceutical and Verastem

0.46

Correlation Coefficient

Biomarin Pharmaceutical  Verastem

Very weak diversification

The 3 months correlation between Biomarin and Verastem is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Biomarin Pharmaceutical and Verastem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verastem 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 Verastem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verastem has no effect on the direction of Biomarin Pharmaceutical i.e., Biomarin Pharmaceutical and Verastem go up and down completely randomly.

Pair Corralation between Biomarin Pharmaceutical and Verastem

Given the investment horizon of 90 days Biomarin Pharmaceutical is expected to generate 6.56 times less return on investment than Verastem. But when comparing it to its historical volatility, Biomarin Pharmaceutical is 4.58 times less risky than Verastem. It trades about 0.12 of its potential returns per unit of risk. Verastem is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  367.00  in Verastem on December 29, 2024 and sell it today you would earn a total of  306.00  from holding Verastem or generate 83.38% return on investment over 90 days.

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

Biomarin Pharmaceutical  vs.  Verastem

Biomarin Pharmaceutical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Biomarin Pharmaceutical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Biomarin Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Verastem

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verastem are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Verastem displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biomarin Pharmaceutical and Verastem

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

The idea behind Biomarin Pharmaceutical and Verastem 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.