Correlation Between Pliant Therapeutics and Revolution Medicines

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

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

Diversification Opportunities for Pliant Therapeutics and Revolution Medicines

0.43

Correlation Coefficient

Pliant Therapeutics  Revolution Medicines

Very weak diversification

The 3 months correlation between Pliant and Revolution is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Pliant Therapeutics and Revolution Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Medicines and Pliant 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 Pliant Therapeutics are associated (or correlated) with Revolution Medicines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Revolution Medicines has no effect on the direction of Pliant Therapeutics i.e., Pliant Therapeutics and Revolution Medicines go up and down completely randomly.

Pair Corralation between Pliant Therapeutics and Revolution Medicines

Given the investment horizon of 90 days Pliant Therapeutics is expected to under-perform the Revolution Medicines. In addition to that, Pliant Therapeutics is 4.04 times more volatile than Revolution Medicines. It trades about -0.16 of its total potential returns per unit of risk. Revolution Medicines is currently generating about -0.22 per unit of volatility. If you would invest  5,785  in Revolution Medicines on November 28, 2024 and sell it today you would lose (1,709) from holding Revolution Medicines or give up 29.54% of portfolio value over 90 days.

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

Pliant Therapeutics  vs.  Revolution Medicines

Pliant Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pliant Therapeutics 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 fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Revolution Medicines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Revolution Medicines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Pliant Therapeutics and Revolution Medicines

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

The idea behind Pliant Therapeutics and Revolution Medicines 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.