Correlation Between Fortress Biotech and Lexicon Pharmaceuticals

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

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

Diversification Opportunities for Fortress Biotech and Lexicon Pharmaceuticals

0.5

Correlation Coefficient

Fortress Biotech  Lexicon Pharmaceuticals

Very weak diversification

The 3 months correlation between Fortress and Lexicon is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Fortress Biotech Pref and Lexicon Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lexicon 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 Pref are associated (or correlated) with Lexicon Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lexicon Pharmaceuticals has no effect on the direction of Fortress Biotech i.e., Fortress Biotech and Lexicon Pharmaceuticals go up and down completely randomly.

Pair Corralation between Fortress Biotech and Lexicon Pharmaceuticals

Assuming the 90 days horizon Fortress Biotech Pref is expected to under-perform the Lexicon Pharmaceuticals. But the preferred stock apears to be less risky and, when comparing its historical volatility, Fortress Biotech Pref is 4.54 times less risky than Lexicon Pharmaceuticals. The preferred stock trades about -0.02 of its potential returns per unit of risk. The Lexicon Pharmaceuticals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  72.00  in Lexicon Pharmaceuticals on December 30, 2024 and sell it today you would lose (15.00) from holding Lexicon Pharmaceuticals or give up 20.83% of portfolio value over 90 days.

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

Fortress Biotech Pref  vs.  Lexicon Pharmaceuticals

Fortress Biotech Pref

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortress Biotech Pref has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Fortress Biotech is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Lexicon Pharmaceuticals

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Fortress Biotech and Lexicon Pharmaceuticals

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

The idea behind Fortress Biotech Pref and Lexicon 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.