Correlation Between Nextage Therapeutics and Purple Biotech

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

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

Diversification Opportunities for Nextage Therapeutics and Purple Biotech

-0.37

Correlation Coefficient

Nextage Therapeutics  Purple Biotech

Very good diversification

The 3 months correlation between Nextage and Purple is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Nextage Therapeutics and Purple Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purple Biotech and Nextage Therapeutics 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 Nextage Therapeutics are associated (or correlated) with Purple Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purple Biotech has no effect on the direction of Nextage Therapeutics i.e., Nextage Therapeutics and Purple Biotech go up and down completely randomly.

Pair Corralation between Nextage Therapeutics and Purple Biotech

Assuming the 90 days trading horizon Nextage Therapeutics is expected to generate 10.2 times less return on investment than Purple Biotech. But when comparing it to its historical volatility, Nextage Therapeutics is 4.42 times less risky than Purple Biotech. It trades about 0.1 of its potential returns per unit of risk. Purple Biotech is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  590.00  in Purple Biotech on September 5, 2024 and sell it today you would earn a total of  510.00  from holding Purple Biotech or generate 86.44% return on investment over 90 days.

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

Nextage Therapeutics  vs.  Purple Biotech

Nextage Therapeutics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nextage Therapeutics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nextage Therapeutics sustained solid returns over the last few months and may actually be approaching a breakup point.

Purple Biotech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Purple Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Purple Biotech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nextage Therapeutics and Purple Biotech

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

The idea behind Nextage Therapeutics and Purple Biotech 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.