Correlation Between Opthea and SpringWorks Therapeutics

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

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

Diversification Opportunities for Opthea and SpringWorks Therapeutics

-0.89

Correlation Coefficient

Opthea  SpringWorks Therapeutics

Pay attention - limited upside

The 3 months correlation between Opthea and SpringWorks is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Opthea and SpringWorks Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SpringWorks Therapeutics and Opthea 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 Opthea 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 Opthea i.e., Opthea and SpringWorks Therapeutics go up and down completely randomly.

Pair Corralation between Opthea and SpringWorks Therapeutics

Considering the 90-day investment horizon Opthea is expected to under-perform the SpringWorks Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Opthea is 1.04 times less risky than SpringWorks Therapeutics. The stock trades about -0.34 of its potential returns per unit of risk. The SpringWorks Therapeutics is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  3,048  in SpringWorks Therapeutics on August 31, 2024 and sell it today you would earn a total of  1,125  from holding SpringWorks Therapeutics or generate 36.91% return on investment over 90 days.

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

Opthea  vs.  SpringWorks Therapeutics

Opthea

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Opthea are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Opthea unveiled solid returns over the last few months and may actually be approaching a breakup point.

SpringWorks Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SpringWorks Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SpringWorks Therapeutics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Opthea and SpringWorks Therapeutics

The main advantage of trading using opposite Opthea and SpringWorks Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Opthea 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 Opthea 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.