Correlation Between Puma Biotechnology and Vertex Pharmaceuticals

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

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

Diversification Opportunities for Puma Biotechnology and Vertex Pharmaceuticals

0.18

Correlation Coefficient

Puma Biotechnology  Vertex Pharmaceuticals

Average diversification

The 3 months correlation between Puma and Vertex is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Puma Biotechnology and Vertex Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals and Puma Biotechnology 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 Puma Biotechnology are associated (or correlated) with Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Puma Biotechnology i.e., Puma Biotechnology and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between Puma Biotechnology and Vertex Pharmaceuticals

Given the investment horizon of 90 days Puma Biotechnology is expected to generate 2.68 times less return on investment than Vertex Pharmaceuticals. In addition to that, Puma Biotechnology is 3.14 times more volatile than Vertex Pharmaceuticals. It trades about 0.01 of its total potential returns per unit of risk. Vertex Pharmaceuticals is currently generating about 0.07 per unit of volatility. If you would invest  28,732  in Vertex Pharmaceuticals on September 16, 2024 and sell it today you would earn a total of  17,641  from holding Vertex Pharmaceuticals or generate 61.4% return on investment over 90 days.

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

Puma Biotechnology  vs.  Vertex Pharmaceuticals

Puma Biotechnology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Puma Biotechnology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Puma Biotechnology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Vertex Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vertex Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Vertex Pharmaceuticals is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Puma Biotechnology and Vertex Pharmaceuticals

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

The idea behind Puma Biotechnology and Vertex 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.