Correlation Between NewAmsterdam Pharma and Scilex Holding

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

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

Diversification Opportunities for NewAmsterdam Pharma and Scilex Holding

0.42

Correlation Coefficient

NewAmsterdam Pharma  Scilex Holding

Very weak diversification

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

Pair Corralation between NewAmsterdam Pharma and Scilex Holding

Given the investment horizon of 90 days NewAmsterdam Pharma is expected to generate 0.35 times more return on investment than Scilex Holding. However, NewAmsterdam Pharma is 2.82 times less risky than Scilex Holding. It trades about 0.04 of its potential returns per unit of risk. Scilex Holding is currently generating about -0.03 per unit of risk. If you would invest  1,964  in NewAmsterdam Pharma on December 1, 2024 and sell it today you would earn a total of  136.00  from holding NewAmsterdam Pharma or generate 6.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

NewAmsterdam Pharma  vs.  Scilex Holding

NewAmsterdam Pharma

Risk-Adjusted Performance

Insignificant

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

Scilex Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scilex Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with NewAmsterdam Pharma and Scilex Holding

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

The idea behind NewAmsterdam Pharma and Scilex Holding 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.