Correlation Between Knight Therapeutics and Cipher Pharmaceuticals

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

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

Diversification Opportunities for Knight Therapeutics and Cipher Pharmaceuticals

-0.42

Correlation Coefficient

Knight Therapeutics  Cipher Pharmaceuticals

Very good diversification

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

Pair Corralation between Knight Therapeutics and Cipher Pharmaceuticals

Assuming the 90 days trading horizon Knight Therapeutics is expected to generate 0.54 times more return on investment than Cipher Pharmaceuticals. However, Knight Therapeutics is 1.87 times less risky than Cipher Pharmaceuticals. It trades about 0.13 of its potential returns per unit of risk. Cipher Pharmaceuticals is currently generating about -0.04 per unit of risk. If you would invest  525.00  in Knight Therapeutics on December 30, 2024 and sell it today you would earn a total of  84.00  from holding Knight Therapeutics or generate 16.0% return on investment over 90 days.

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

Knight Therapeutics  vs.  Cipher Pharmaceuticals

Knight Therapeutics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knight Therapeutics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Knight Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Cipher Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cipher Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Knight Therapeutics and Cipher Pharmaceuticals

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

The idea behind Knight Therapeutics and Cipher 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.