Correlation Between Equillium and United Therapeutics

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

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

Diversification Opportunities for Equillium and United Therapeutics

-0.28

Correlation Coefficient

Equillium  United Therapeutics

Very good diversification

The 3 months correlation between Equillium and United is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Equillium and United Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Therapeutics and Equillium 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 Equillium are associated (or correlated) with United Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Therapeutics has no effect on the direction of Equillium i.e., Equillium and United Therapeutics go up and down completely randomly.

Pair Corralation between Equillium and United Therapeutics

Allowing for the 90-day total investment horizon Equillium is expected to under-perform the United Therapeutics. In addition to that, Equillium is 2.67 times more volatile than United Therapeutics. It trades about -0.08 of its total potential returns per unit of risk. United Therapeutics is currently generating about -0.04 per unit of volatility. If you would invest  37,397  in United Therapeutics on October 1, 2024 and sell it today you would lose (1,401) from holding United Therapeutics or give up 3.75% of portfolio value over 90 days.

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

Equillium  vs.  United Therapeutics

Equillium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equillium has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Equillium is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

United Therapeutics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Therapeutics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, United Therapeutics is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Equillium and United Therapeutics

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

The idea behind Equillium and United Therapeutics 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 Anywhere module to track or share privately all of your investments from the convenience of any device.