Correlation Between Esperion Therapeutics and Tandem Diabetes

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

By analyzing existing cross correlation between Esperion Therapeutics and Tandem Diabetes Care, you can compare the effects of market volatilities on Esperion Therapeutics and Tandem Diabetes 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 Tandem Diabetes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Esperion Therapeutics and Tandem Diabetes.

Diversification Opportunities for Esperion Therapeutics and Tandem Diabetes

-0.79

Correlation Coefficient

Esperion Therapeutics  Tandem Diabetes

Pay attention - limited upside

The 3 months correlation between Esperion and Tandem is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Esperion Therapeutics and Tandem Diabetes Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandem Diabetes Care 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 Tandem Diabetes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandem Diabetes Care has no effect on the direction of Esperion Therapeutics i.e., Esperion Therapeutics and Tandem Diabetes go up and down completely randomly.

Pair Corralation between Esperion Therapeutics and Tandem Diabetes

Given the investment horizon of 90 days Esperion Therapeutics is expected to generate 1.29 times more return on investment than Tandem Diabetes. However, Esperion Therapeutics is 1.29 times more volatile than Tandem Diabetes Care. It trades about 0.09 of its potential returns per unit of risk. Tandem Diabetes Care is currently generating about 0.05 per unit of risk. If you would invest  141.00  in Esperion Therapeutics on September 4, 2024 and sell it today you would earn a total of  184.00  from holding Esperion Therapeutics or generate 130.5% return on investment over 90 days.

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

Esperion Therapeutics  vs.  Tandem Diabetes Care

Esperion Therapeutics

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Esperion Therapeutics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Esperion Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Tandem Diabetes Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tandem Diabetes Care 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 fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Esperion Therapeutics and Tandem Diabetes

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

The idea behind Esperion Therapeutics and Tandem Diabetes Care 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.