Correlation Between Fate Therapeutics and Esperion Therapeutics

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

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

Diversification Opportunities for Fate Therapeutics and Esperion Therapeutics

-0.41

Correlation Coefficient

Fate Therapeutics  Esperion Therapeutics

Very good diversification

The 3 months correlation between Fate and Esperion is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Fate Therapeutics and Esperion Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Esperion Therapeutics and Fate 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 Fate Therapeutics are associated (or correlated) with Esperion Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Esperion Therapeutics has no effect on the direction of Fate Therapeutics i.e., Fate Therapeutics and Esperion Therapeutics go up and down completely randomly.

Pair Corralation between Fate Therapeutics and Esperion Therapeutics

Given the investment horizon of 90 days Fate Therapeutics is expected to under-perform the Esperion Therapeutics. In addition to that, Fate Therapeutics is 1.02 times more volatile than Esperion Therapeutics. It trades about -0.03 of its total potential returns per unit of risk. Esperion Therapeutics is currently generating about 0.01 per unit of volatility. If you would invest  292.00  in Esperion Therapeutics on September 25, 2024 and sell it today you would lose (67.00) from holding Esperion Therapeutics or give up 22.95% of portfolio value over 90 days.

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

Fate Therapeutics  vs.  Esperion Therapeutics

Fate Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fate Therapeutics 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.

Esperion Therapeutics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Esperion Therapeutics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Esperion Therapeutics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fate Therapeutics and Esperion Therapeutics

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

The idea behind Fate Therapeutics and Esperion 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.