Correlation Between Day One and NextCure

Can any of the company-specific risk be diversified away by investing in both Day One and NextCure 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 NextCure 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 NextCure, you can compare the effects of market volatilities on Day One and NextCure 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 NextCure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Day One and NextCure.

Diversification Opportunities for Day One and NextCure

0.54

Correlation Coefficient

Day One  NextCure

Very weak diversification

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

Pair Corralation between Day One and NextCure

Given the investment horizon of 90 days Day One Biopharmaceuticals is expected to generate 0.65 times more return on investment than NextCure. However, Day One Biopharmaceuticals is 1.54 times less risky than NextCure. It trades about -0.03 of its potential returns per unit of risk. NextCure is currently generating about -0.07 per unit of risk. If you would invest  1,363  in Day One Biopharmaceuticals on September 15, 2024 and sell it today you would lose (88.00) from holding Day One Biopharmaceuticals or give up 6.46% of portfolio value over 90 days.

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

Day One Biopharmaceuticals  vs.  NextCure

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 very healthy basic indicators, Day One is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

NextCure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextCure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Day One and NextCure

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

The idea behind Day One Biopharmaceuticals and NextCure 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.