Correlation Between NextCure and Third Harmonic

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

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

Diversification Opportunities for NextCure and Third Harmonic

0.01

Correlation Coefficient

NextCure  Third Harmonic

Significant diversification

The 3 months correlation between NextCure and Third is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding NextCure and Third Harmonic Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Harmonic Bio 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 Third Harmonic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Harmonic Bio has no effect on the direction of NextCure i.e., NextCure and Third Harmonic go up and down completely randomly.

Pair Corralation between NextCure and Third Harmonic

Given the investment horizon of 90 days NextCure is expected to under-perform the Third Harmonic. But the stock apears to be less risky and, when comparing its historical volatility, NextCure is 1.27 times less risky than Third Harmonic. The stock trades about -0.09 of its potential returns per unit of risk. The Third Harmonic Bio is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,191  in Third Harmonic Bio on August 31, 2024 and sell it today you would earn a total of  85.00  from holding Third Harmonic Bio or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

NextCure  vs.  Third Harmonic Bio

NextCure

Risk-Adjusted Performance

0 of 100

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 December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Third Harmonic Bio

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Third Harmonic Bio are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Third Harmonic exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextCure and Third Harmonic

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

The idea behind NextCure and Third Harmonic Bio 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.