Correlation Between NextCure and Terns Pharmaceuticals

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

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

Diversification Opportunities for NextCure and Terns Pharmaceuticals

0.84

Correlation Coefficient

NextCure  Terns Pharmaceuticals

Very poor diversification

The 3 months correlation between NextCure and Terns is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NextCure and Terns Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Terns Pharmaceuticals 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 Terns Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Terns Pharmaceuticals has no effect on the direction of NextCure i.e., NextCure and Terns Pharmaceuticals go up and down completely randomly.

Pair Corralation between NextCure and Terns Pharmaceuticals

Given the investment horizon of 90 days NextCure is expected to generate 1.15 times more return on investment than Terns Pharmaceuticals. However, NextCure is 1.15 times more volatile than Terns Pharmaceuticals. It trades about -0.15 of its potential returns per unit of risk. Terns Pharmaceuticals is currently generating about -0.23 per unit of risk. If you would invest  83.00  in NextCure on December 29, 2024 and sell it today you would lose (30.00) from holding NextCure or give up 36.14% of portfolio value over 90 days.

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

NextCure  vs.  Terns Pharmaceuticals

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Terns Pharmaceuticals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with NextCure and Terns Pharmaceuticals

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

The idea behind NextCure and Terns 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.