Correlation Between Nuvalent and Alnylam Pharmaceuticals

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

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

Diversification Opportunities for Nuvalent and Alnylam Pharmaceuticals

0.47

Correlation Coefficient

Nuvalent  Alnylam Pharmaceuticals

Very weak diversification

The 3 months correlation between Nuvalent and Alnylam is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and Alnylam Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alnylam Pharmaceuticals and Nuvalent 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 Nuvalent are associated (or correlated) with Alnylam Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alnylam Pharmaceuticals has no effect on the direction of Nuvalent i.e., Nuvalent and Alnylam Pharmaceuticals go up and down completely randomly.

Pair Corralation between Nuvalent and Alnylam Pharmaceuticals

Given the investment horizon of 90 days Nuvalent is expected to under-perform the Alnylam Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Nuvalent is 1.17 times less risky than Alnylam Pharmaceuticals. The stock trades about -0.02 of its potential returns per unit of risk. The Alnylam Pharmaceuticals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  23,601  in Alnylam Pharmaceuticals on December 29, 2024 and sell it today you would earn a total of  3,245  from holding Alnylam Pharmaceuticals or generate 13.75% return on investment over 90 days.

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

Nuvalent  vs.  Alnylam Pharmaceuticals

Nuvalent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Nuvalent is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Alnylam Pharmaceuticals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alnylam Pharmaceuticals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Alnylam Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nuvalent and Alnylam Pharmaceuticals

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

The idea behind Nuvalent and Alnylam 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.