Correlation Between NextCure and Spero Therapeutics

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

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

Diversification Opportunities for NextCure and Spero Therapeutics

0.91

Correlation Coefficient

NextCure  Spero Therapeutics

Almost no diversification

The 3 months correlation between NextCure and Spero is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding NextCure and Spero Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spero Therapeutics and NextCure 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 NextCure are associated (or correlated) with Spero Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spero Therapeutics has no effect on the direction of NextCure i.e., NextCure and Spero Therapeutics go up and down completely randomly.

Pair Corralation between NextCure and Spero Therapeutics

Given the investment horizon of 90 days NextCure is expected to generate 0.7 times more return on investment than Spero Therapeutics. However, NextCure is 1.42 times less risky than Spero Therapeutics. It trades about -0.08 of its potential returns per unit of risk. Spero Therapeutics is currently generating about -0.08 per unit of risk. If you would invest  81.00  in NextCure on November 19, 2024 and sell it today you would lose (5.30) from holding NextCure or give up 6.54% of portfolio value over 90 days.

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

NextCure  vs.  Spero Therapeutics

NextCure

Risk-Adjusted Performance

Very Weak

Over the last 90 days NextCure has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Spero Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spero Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with NextCure and Spero Therapeutics

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

The idea behind NextCure and Spero 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.