Correlation Between Generation Bio and Foghorn Therapeutics

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

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

Diversification Opportunities for Generation Bio and Foghorn Therapeutics

0.64

Correlation Coefficient

Generation Bio  Foghorn Therapeutics

Poor diversification

The 3 months correlation between Generation and Foghorn is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Generation Bio Co and Foghorn Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foghorn Therapeutics and Generation Bio 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 Generation Bio Co are associated (or correlated) with Foghorn Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foghorn Therapeutics has no effect on the direction of Generation Bio i.e., Generation Bio and Foghorn Therapeutics go up and down completely randomly.

Pair Corralation between Generation Bio and Foghorn Therapeutics

Given the investment horizon of 90 days Generation Bio Co is expected to under-perform the Foghorn Therapeutics. In addition to that, Generation Bio is 1.07 times more volatile than Foghorn Therapeutics. It trades about -0.25 of its total potential returns per unit of risk. Foghorn Therapeutics is currently generating about -0.22 per unit of volatility. If you would invest  984.00  in Foghorn Therapeutics on September 17, 2024 and sell it today you would lose (491.00) from holding Foghorn Therapeutics or give up 49.9% of portfolio value over 90 days.

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

Generation Bio Co  vs.  Foghorn Therapeutics

Generation Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Generation Bio Co 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 forward 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.

Foghorn Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Foghorn Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Generation Bio and Foghorn Therapeutics

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

The idea behind Generation Bio Co and Foghorn 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.