Correlation Between Blueprint Medicines and Lexicon Pharmaceuticals

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

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

Diversification Opportunities for Blueprint Medicines and Lexicon Pharmaceuticals

0.54

Correlation Coefficient

Blueprint Medicines  Lexicon Pharmaceuticals

Very weak diversification

The 3 months correlation between Blueprint and Lexicon is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Blueprint Medicines Corp and Lexicon Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lexicon Pharmaceuticals and Blueprint Medicines 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 Blueprint Medicines Corp are associated (or correlated) with Lexicon Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lexicon Pharmaceuticals has no effect on the direction of Blueprint Medicines i.e., Blueprint Medicines and Lexicon Pharmaceuticals go up and down completely randomly.

Pair Corralation between Blueprint Medicines and Lexicon Pharmaceuticals

Given the investment horizon of 90 days Blueprint Medicines is expected to generate 5.25 times less return on investment than Lexicon Pharmaceuticals. But when comparing it to its historical volatility, Blueprint Medicines Corp is 3.49 times less risky than Lexicon Pharmaceuticals. It trades about 0.03 of its potential returns per unit of risk. Lexicon Pharmaceuticals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  72.00  in Lexicon Pharmaceuticals on December 30, 2024 and sell it today you would lose (15.00) from holding Lexicon Pharmaceuticals or give up 20.83% of portfolio value over 90 days.

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

Blueprint Medicines Corp  vs.  Lexicon Pharmaceuticals

Blueprint Medicines Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Blueprint Medicines Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Blueprint Medicines is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Lexicon Pharmaceuticals

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lexicon Pharmaceuticals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lexicon Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Blueprint Medicines and Lexicon Pharmaceuticals

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

The idea behind Blueprint Medicines Corp and Lexicon 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.