Correlation Between Esperion Therapeutics and Ironwood Pharmaceuticals

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

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

Diversification Opportunities for Esperion Therapeutics and Ironwood Pharmaceuticals

-0.45

Correlation Coefficient

Esperion Therapeutics  Ironwood Pharmaceuticals

Very good diversification

The 3 months correlation between Esperion and Ironwood is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Esperion Therapeutics and Ironwood Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ironwood Pharmaceuticals and Esperion Therapeutics 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 Esperion Therapeutics are associated (or correlated) with Ironwood Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ironwood Pharmaceuticals has no effect on the direction of Esperion Therapeutics i.e., Esperion Therapeutics and Ironwood Pharmaceuticals go up and down completely randomly.

Pair Corralation between Esperion Therapeutics and Ironwood Pharmaceuticals

Given the investment horizon of 90 days Esperion Therapeutics is expected to under-perform the Ironwood Pharmaceuticals. In addition to that, Esperion Therapeutics is 1.32 times more volatile than Ironwood Pharmaceuticals. It trades about -0.14 of its total potential returns per unit of risk. Ironwood Pharmaceuticals is currently generating about 0.17 per unit of volatility. If you would invest  362.00  in Ironwood Pharmaceuticals on October 1, 2024 and sell it today you would earn a total of  74.00  from holding Ironwood Pharmaceuticals or generate 20.44% return on investment over 90 days.

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

Esperion Therapeutics  vs.  Ironwood Pharmaceuticals

Esperion Therapeutics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Esperion Therapeutics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Esperion Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Ironwood Pharmaceuticals

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Esperion Therapeutics and Ironwood Pharmaceuticals

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

The idea behind Esperion Therapeutics and Ironwood Pharmaceuticals 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..