Correlation Between Fate Therapeutics and Nuvalent

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

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

Diversification Opportunities for Fate Therapeutics and Nuvalent

0.88

Correlation Coefficient

Fate Therapeutics  Nuvalent

Very poor diversification

The 3 months correlation between Fate and Nuvalent is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Fate Therapeutics and Nuvalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvalent 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 Nuvalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvalent has no effect on the direction of Fate Therapeutics i.e., Fate Therapeutics and Nuvalent go up and down completely randomly.

Pair Corralation between Fate Therapeutics and Nuvalent

Given the investment horizon of 90 days Fate Therapeutics is expected to under-perform the Nuvalent. In addition to that, Fate Therapeutics is 4.08 times more volatile than Nuvalent. It trades about -0.17 of its total potential returns per unit of risk. Nuvalent is currently generating about -0.29 per unit of volatility. If you would invest  9,562  in Nuvalent on September 24, 2024 and sell it today you would lose (1,140) from holding Nuvalent or give up 11.92% of portfolio value over 90 days.

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

Fate Therapeutics  vs.  Nuvalent

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.

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Fate Therapeutics and Nuvalent

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

The idea behind Fate Therapeutics and Nuvalent 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.