Correlation Between Nuvalent and SpringWorks Therapeutics

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

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

Diversification Opportunities for Nuvalent and SpringWorks Therapeutics

-0.36

Correlation Coefficient

Nuvalent  SpringWorks Therapeutics

Very good diversification

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

Pair Corralation between Nuvalent and SpringWorks Therapeutics

Given the investment horizon of 90 days Nuvalent is expected to under-perform the SpringWorks Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Nuvalent is 2.39 times less risky than SpringWorks Therapeutics. The stock trades about -0.03 of its potential returns per unit of risk. The SpringWorks Therapeutics is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,634  in SpringWorks Therapeutics on December 28, 2024 and sell it today you would earn a total of  1,115  from holding SpringWorks Therapeutics or generate 30.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Nuvalent  vs.  SpringWorks Therapeutics

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.

SpringWorks Therapeutics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SpringWorks Therapeutics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SpringWorks Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nuvalent and SpringWorks Therapeutics

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

The idea behind Nuvalent and SpringWorks 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.