Correlation Between Nuvalent and Puma Biotechnology

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

By analyzing existing cross correlation between Nuvalent and Puma Biotechnology, you can compare the effects of market volatilities on Nuvalent and Puma Biotechnology 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 Puma Biotechnology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuvalent and Puma Biotechnology.

Diversification Opportunities for Nuvalent and Puma Biotechnology

-0.36

Correlation Coefficient

Nuvalent  Puma Biotechnology

Very good diversification

The 3 months correlation between Nuvalent and Puma is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and Puma Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Puma Biotechnology 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 Puma Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Puma Biotechnology has no effect on the direction of Nuvalent i.e., Nuvalent and Puma Biotechnology go up and down completely randomly.

Pair Corralation between Nuvalent and Puma Biotechnology

Given the investment horizon of 90 days Nuvalent is expected to under-perform the Puma Biotechnology. But the stock apears to be less risky and, when comparing its historical volatility, Nuvalent is 1.86 times less risky than Puma Biotechnology. The stock trades about -0.15 of its potential returns per unit of risk. The Puma Biotechnology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  252.00  in Puma Biotechnology on September 16, 2024 and sell it today you would earn a total of  36.00  from holding Puma Biotechnology or generate 14.29% return on investment over 90 days.

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

Nuvalent  vs.  Puma Biotechnology

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Puma Biotechnology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Puma Biotechnology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Puma Biotechnology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nuvalent and Puma Biotechnology

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

The idea behind Nuvalent and Puma Biotechnology 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.