Correlation Between Blueprint Medicines and Verastem

Can any of the company-specific risk be diversified away by investing in both Blueprint Medicines 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 Blueprint Medicines and Verastem 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 Verastem, you can compare the effects of market volatilities on Blueprint Medicines 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 Blueprint Medicines with a short position of Verastem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blueprint Medicines and Verastem.

Diversification Opportunities for Blueprint Medicines and Verastem

0.64

Correlation Coefficient

Blueprint Medicines  Verastem

Poor diversification

The 3 months correlation between Blueprint and Verastem is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Blueprint Medicines Corp and Verastem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verastem 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 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 Blueprint Medicines i.e., Blueprint Medicines and Verastem go up and down completely randomly.

Pair Corralation between Blueprint Medicines and Verastem

Given the investment horizon of 90 days Blueprint Medicines is expected to generate 7.24 times less return on investment than Verastem. But when comparing it to its historical volatility, Blueprint Medicines Corp is 2.78 times less risky than Verastem. It trades about 0.06 of its potential returns per unit of risk. Verastem is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  273.00  in Verastem on September 14, 2024 and sell it today you would earn a total of  177.00  from holding Verastem or generate 64.84% return on investment over 90 days.

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

Blueprint Medicines Corp  vs.  Verastem

Blueprint Medicines Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Blueprint Medicines Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating primary indicators, Blueprint Medicines may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Verastem

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verastem are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Verastem displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Blueprint Medicines and Verastem

The main advantage of trading using opposite Blueprint Medicines and Verastem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blueprint Medicines 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 Blueprint Medicines Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.