Correlation Between Codexis and Summit Therapeutics

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

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

Diversification Opportunities for Codexis and Summit Therapeutics

-0.37

Correlation Coefficient

Codexis  Summit Therapeutics

Very good diversification

The 3 months correlation between Codexis and Summit is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Codexis and Summit Therapeutics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Therapeutics PLC and Codexis 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 Codexis are associated (or correlated) with Summit Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Therapeutics PLC has no effect on the direction of Codexis i.e., Codexis and Summit Therapeutics go up and down completely randomly.

Pair Corralation between Codexis and Summit Therapeutics

Given the investment horizon of 90 days Codexis is expected to generate 44.2 times less return on investment than Summit Therapeutics. But when comparing it to its historical volatility, Codexis is 1.31 times less risky than Summit Therapeutics. It trades about 0.01 of its potential returns per unit of risk. Summit Therapeutics PLC is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,928  in Summit Therapeutics PLC on October 27, 2024 and sell it today you would earn a total of  448.00  from holding Summit Therapeutics PLC or generate 23.24% return on investment over 90 days.

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

Codexis  vs.  Summit Therapeutics PLC

Codexis

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Codexis are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Codexis unveiled solid returns over the last few months and may actually be approaching a breakup point.

Summit Therapeutics PLC

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Codexis and Summit Therapeutics

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

The idea behind Codexis and Summit Therapeutics 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.