Correlation Between Fortress Biotech and Terns Pharmaceuticals

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

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

Diversification Opportunities for Fortress Biotech and Terns Pharmaceuticals

-0.42

Correlation Coefficient

Fortress Biotech  Terns Pharmaceuticals

Very good diversification

The 3 months correlation between Fortress and Terns is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Fortress Biotech and Terns Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terns Pharmaceuticals and Fortress Biotech 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 Fortress Biotech are associated (or correlated) with Terns Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terns Pharmaceuticals has no effect on the direction of Fortress Biotech i.e., Fortress Biotech and Terns Pharmaceuticals go up and down completely randomly.

Pair Corralation between Fortress Biotech and Terns Pharmaceuticals

Given the investment horizon of 90 days Fortress Biotech is expected to generate 1.04 times more return on investment than Terns Pharmaceuticals. However, Fortress Biotech is 1.04 times more volatile than Terns Pharmaceuticals. It trades about 0.08 of its potential returns per unit of risk. Terns Pharmaceuticals is currently generating about 0.04 per unit of risk. If you would invest  161.00  in Fortress Biotech on September 23, 2024 and sell it today you would earn a total of  11.00  from holding Fortress Biotech or generate 6.83% return on investment over 90 days.

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

Fortress Biotech  vs.  Terns Pharmaceuticals

Fortress Biotech

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fortress Biotech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Fortress Biotech displayed solid returns over the last few months and may actually be approaching a breakup point.

Terns Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Terns Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic 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 Fortress Biotech and Terns Pharmaceuticals

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

The idea behind Fortress Biotech and Terns 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.