Correlation Between Day One and Biomea Fusion

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

By analyzing existing cross correlation between Day One Biopharmaceuticals and Biomea Fusion, you can compare the effects of market volatilities on Day One and Biomea Fusion 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 Day One with a short position of Biomea Fusion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Day One and Biomea Fusion.

Diversification Opportunities for Day One and Biomea Fusion

0.8

Correlation Coefficient

Day One  Biomea Fusion

Very poor diversification

The 3 months correlation between Day and Biomea is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Day One Biopharmaceuticals and Biomea Fusion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biomea Fusion and Day One 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 Day One Biopharmaceuticals are associated (or correlated) with Biomea Fusion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biomea Fusion has no effect on the direction of Day One i.e., Day One and Biomea Fusion go up and down completely randomly.

Pair Corralation between Day One and Biomea Fusion

Given the investment horizon of 90 days Day One Biopharmaceuticals is expected to under-perform the Biomea Fusion. But the stock apears to be less risky and, when comparing its historical volatility, Day One Biopharmaceuticals is 1.43 times less risky than Biomea Fusion. The stock trades about -0.05 of its potential returns per unit of risk. The Biomea Fusion is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  408.00  in Biomea Fusion on October 26, 2024 and sell it today you would earn a total of  40.00  from holding Biomea Fusion or generate 9.8% return on investment over 90 days.

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

Day One Biopharmaceuticals  vs.  Biomea Fusion

Day One Biopharmaceu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Day One Biopharmaceuticals 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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Biomea Fusion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biomea Fusion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Day One and Biomea Fusion

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

The idea behind Day One Biopharmaceuticals and Biomea Fusion 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.